What Happens If I Don’t Claim the Tax-Free Threshold?

In Australia, the tax-free threshold lets you earn up to $18,200 a year without paying income tax. When starting a job, you’ll be asked if you want to claim it. But what happens if you don’t? Simply put, more tax will be taken from your pay during the year. This isn’t always a problem especially if you have multiple jobs but if you only have one job, you might be paying too much tax.

The good news is, any extra tax you’ve paid can usually be refunded at tax time. In this article, we’ll break down what it means to not claim the tax-free threshold, when it’s the right choice, and how it affects your pay and refund. Understanding this small decision can help you avoid surprises and stay on top of your tax obligations.

How the Tax-Free Threshold Affects Your Pay

In Australia, the tax-free threshold means you can earn up to $18,200 each financial year without paying any income tax. If you claim the tax-free threshold, your employer will take out less tax from your wages, so you get more money in your regular pay. This can help you cover everyday costs and give you more money in your pocket during the year.

If you don’t claim the tax-free threshold, your employer will take out more tax from your pay than necessary. While you might get some of it back as a refund when you lodge your tax return, you’ll have less money to spend during the year.

Usually, you should only claim the tax-free threshold from one employer at a time. If you have more than one job, only your main employer should apply the threshold, otherwise you risk underpaying tax and owing money at the end of the financial year.

At HelloLedger, we make things easy by helping you understand how the tax-free threshold works and what’s right for your job situation. Our team is here to make sure you make the best choice and feel confident about your pay and your tax return.

What Happens If You Don’t Claim the Tax-Free Threshold?

Get Expert Help Now

If you choose not to claim the tax-free threshold, your employer will withhold more tax from your pay. This means that each time you get paid, a larger portion of your salary will be taken out for tax purposes. As a result, you’ll have less money available in your paychecks.

If you don’t claim it, more tax will be taken out of your pay, leaving you with less money each paycheck. For the current financial year, the tax-free threshold is $18,200. If you don't claim it, your employer will assume you are not eligible and will start withholding tax as though you’re earning above this amount.

The upside is that when you lodge your tax return, you’re likely to get a larger tax refund at the end of the year. Since you’ve overpaid tax throughout the year, the Australian Taxation Office (ATO) will review your tax situation and return the extra amount you paid in excess.

However, while you’ll eventually get a refund, it can create some short-term financial stress because you’ll have less money each payday. Claiming the tax-free threshold means your employer will deduct less tax, giving you more money in your pocket throughout the year.

Why You Might Choose Not to Claim the Tax-Free Threshold

There are a few situations where not claiming the tax-free threshold could actually be the better choice:

1. If you have multiple jobs: If you have multiple jobs, only claim the tax-free threshold on your main job to avoid overpaying tax. If you claim it on both, you might end up underpaid on tax, leading to a surprise tax debt later. It’s better to not claim it on one job to avoid this issue.

2. If you’ve already claimed it on another income: If you've already claimed the tax-free threshold on your main income, it’s best not to claim it on any additional jobs. This way, the tax will be deducted correctly from all your income sources.

3. To avoid potential tax debts at year-end: If you're unsure about your tax situation or expect your income to fluctuate, not claiming the threshold can help you avoid underpayment. This way, you’re less likely to face a large tax bill when you lodge your return.

In these cases, not claiming the tax-free threshold helps keep your tax deductions accurate and avoids surprises at tax time.

The Effect of Not Claiming Tax-Free Threshold

Learn How to Maximise Your Tax Savings

If you choose not to claim the tax-free threshold, the impact on your pay and tax return will be as follows:

1. Higher Tax Withheld From Your Pay: Since the tax-free threshold reduces the amount of tax taken from your salary, not claiming it means more tax is withheld each time you’re paid. This can make it feel like you’re earning less because more money is taken out for tax purposes.

2. Potential for a Larger Tax Refund: While you’ll have more tax deducted throughout the year, the Australian Taxation Office (ATO) will review your tax return and, if you’ve paid too much tax, they will refund the extra amount. This means you could get back the tax that was overpaid during the year.

3. Avoiding Potential Tax Debts: Not claiming the threshold can help you avoid any surprises at the end of the financial year, where you may end up owing money. By overpaying a little each month, you ensure you don’t have to pay a large lump sum when you file your return.

Choosing not to claim the tax-free threshold means more tax will be deducted from your paycheck each time, but don't worry – this could actually work in your favor! By the end of the year, you'll likely receive a larger refund when you lodge your tax return. Plus, it helps you avoid any unexpected tax bills.

At HelloLedger, we’re here to help you navigate the process, ensuring you’re on track for the best possible outcome. Let’s make tax time easy and stress-free!

Can You Correct Your Tax-Free Threshold Claim Later?

If you forgot to claim the tax-free threshold when starting your job, there’s no need to stress. You can easily make the correction when it’s time to file your tax return at the end of the financial year. The Australian Taxation Office (ATO) will review your details and adjust your tax accordingly, ensuring everything is accurate.

At HelloLedger, we make sure the process is hassle-free for you. We ensure your tax-free threshold claim is correctly reflected, preventing overpayment or underpayment of tax. With our expert team we’ll navigate the process, ensuring you only pay what’s necessary.

If you missed claiming it earlier, a tax accountant will help amend your tax return efficiently, ensuring you get the refund you're entitled to. Our team is here to guide you through every step, ensuring that your tax return is accurate, complete, and stress-free. Don’t worry about past mistakes—we’ve got you covered!

Conclusion: Should You Claim the Tax-Free Threshold?

If you’ve missed claiming the tax-free threshold, don’t worry—it’s not the end of the world. While not claiming it means more tax will be taken out of your pay throughout the year, the good news is that it can be easily corrected when you file your tax return. At tax time, the Australian Taxation Office (ATO) will review your income and adjust your tax to make sure you don’t pay more than you should.

The process of correcting this is simple and straightforward, especially with the help of a tax accountant. We’ll ensure everything is accurate and you’re getting the refund you’re entitled to. So, if you forgot to claim it at the start of your job, just remember—it’s an easy fix during your tax return. You’ll have peace of mind knowing your tax is handled correctly, and you won’t overpay.

Don’t wait for tax season to stress you out. Book a free discovery call today and we’ll help you understand your tax situation, answer your questions, and make sure your taxes are handled right.