What Happens If I Don’t Claim the Tax-Free Threshold?
- Leonie Martin
- Jan 9
- 5 min read
Understanding the Australian tax system can feel confusing, especially when it comes to the tax-free threshold. Many Australians aren’t sure whether they should claim it, what happens if they don’t, or how it affects their take-home pay.
In this blog, we will explain clearly what happens if I don’t claim the tax-free threshold, how it affects your taxes, and when it’s beneficial to claim it. We’ll also answer common questions such as “how much tax do I pay if I don't claim the tax-free threshold?” and “should I claim the tax-free threshold?”
What Is the Tax-Free Threshold?
The tax-free threshold is the amount of income you can earn each financial year without paying income tax. In Australia, the current tax-free threshold is $18,200. This means if you earn $18,200 or less, you generally don’t pay any tax.
When you start a job, your employer will ask, “Do you want to claim the tax-free threshold from this payer?” This determines how much tax will be withheld from your salary.
Claiming the threshold from one employer ensures you are not overtaxed throughout the year, which helps with your cash flow.
What Happens If I Don’t Claim the Tax-Free Threshold?
Many employees wonder, “What happens if I don’t claim the tax-free threshold?” or “Not claiming the tax free threshold – is it a problem?”
If you don’t claim the tax-free threshold, your employer will withhold tax as if you have no tax-free threshold. This means more tax is taken from each pay. While you won’t pay extra tax overall when you lodge your tax return, you may have less money in your paychecks during the year.
In other words, not claiming the tax free threshold does not mean you are being penalised; it simply means you pay more tax upfront, and you may receive a refund at the end of the financial year if you’ve overpaid.
How Much Tax Do I Pay If I Don’t Claim the Tax-Free Threshold?
The exact amount of tax withheld depends on your income. For example, if you earn $50,000 a year and don’t claim the tax-free threshold, your employer will withhold more from each paycheck than if you did claim it.
The difference is because your first $18,200 of income is treated as taxable when you do not claim the threshold. Essentially, you are front-loading your tax payments rather than spreading them evenly across the year.
While this can reduce the risk of owing tax when you lodge your return, it may leave you with less disposable income during the year.
Situations When You Might Not Claim the Tax-Free Threshold
There are specific scenarios where not claiming the tax free threshold makes sense:
1. You Have More Than One Job
If you work multiple jobs, you should usually claim the tax-free threshold from only one employer—your main source of income. For your second job, you generally don’t claim the threshold. This ensures that enough tax is withheld across your combined income and reduces the risk of a tax debt at the end of the year.
2. Your Income Is Very High
For high-income earners, especially those with multiple sources of income, not claiming the tax-free threshold from secondary payers can prevent a large tax bill when lodging your return.
3. You Expect Other Taxable Income
If you have investment income, rental income, or other taxable income, choosing not to claim the tax-free threshold can help cover tax obligations throughout the year.
Should I Claim the Tax-Free Threshold?
Many Australians ask: “Should I claim the tax free threshold?” The answer depends on your situation. If you only have one job and earn less than $18,200 a year, claiming the threshold is essential because you won’t pay tax on that income.
For employees with multiple jobs or additional income sources, it may be wiser to claim the threshold only from your main employer.
It’s also worth noting that claiming the threshold doesn’t change your total tax liability—it only affects how much tax is withheld during the year.
Claiming the Tax-Free Threshold Correctly
When starting a new job, your employer will ask if you want to claim tax free threshold. You need to complete a Tax File Number (TFN) declaration to make this choice official.
If you make an error or your circumstances change, you can adjust your withholding by submitting a variation form to the ATO or notifying your employer.
Implications of Not Claiming the Tax-Free Threshold
Here’s what happens when you don’t claim the tax-free threshold:
More tax is withheld from your regular pay
You may receive a tax refund when lodging your annual tax return if you overpaid
You may have lower cash flow during the year, which could affect budgeting
While it’s safe in terms of compliance, not claiming the threshold may not be ideal for day-to-day finances.
Advantages of Claiming the Tax-Free Threshold
Claiming the tax-free threshold has several benefits:
You keep more of your pay throughout the year
Less chance of overpaying tax and waiting for a refund
Simpler tax management for those with a single source of income
For employees with only one job and no other significant income, claiming the tax-free threshold is almost always beneficial.
Common Questions About the Tax-Free Threshold
What Happens If I Don’t Claim the Tax-Free Threshold?
You will pay more tax throughout the year, but your total tax liability does not increase. You may get a refund at tax time if you overpaid.
Not Claiming Tax Free Threshold – Is It Risky?
Not necessarily. It’s a safe approach if you have multiple jobs or expect additional taxable income. The downside is reduced take-home pay.
How Much Tax Do I Pay If I Don’t Claim the Tax-Free Threshold?
The amount depends on your income. Your employer withholds tax from your pay as if you have no tax-free threshold, so more tax is taken upfront.
Do You Want to Claim the Tax-Free Threshold From This Payer?
This is the question your employer will ask. Answer carefully based on your primary income source and overall tax situation.
Should I Claim the Tax-Free Threshold?
If you have one job and no other income, yes. If you have multiple jobs or significant other income, you may choose not to claim the threshold from secondary payers.
Claiming Tax-Free Threshold With Multiple Jobs
Claim from your main job only. Not claiming it from secondary jobs prevents under-withholding and unexpected tax bills.
Tips for Managing Your Tax-Free Threshold
Check your main employer: Always claim the threshold from your primary employer.
Update your employer if circumstances change: If you get a second job or other taxable income, update your TFN declaration.
Use the ATO tools: The ATO website offers calculators to estimate your withholding and ensure you aren’t over or underpaying tax.
Keep good records: Documentation makes tax time easier, especially if your situation changes mid-year.
Conclusion
The tax-free threshold is an important part of Australia’s tax system. Understanding what happens if I don’t claim the tax-free threshold can help you make informed decisions about your income, withholding, and budgeting.
Not claiming the tax-free threshold doesn’t increase your total tax liability, but it does reduce your take-home pay throughout the year. Whether you should claim it depends on your individual situation—single job, multiple jobs, or additional income sources.
Always review your circumstances and consult the ATO or a registered accountant if unsure. By understanding your options, you can maximise your take-home pay, avoid surprises at tax time, and make the most of your earnings.
