The tax-free threshold is the first $18,200 of income you can earn in a financial year before you pay a cent of income tax. You claim it on the tax-file-number declaration you fill in when you start a job, and as a rule you claim it with just one employer, usually your main one.
That sounds simple, and most of the time it is. The wrinkles show up when you have more than one job, when your income changes partway through the year, or when you assume a small side gig is too small to matter. Here is how the threshold actually works, with the figures last checked June 2026.
What the tax-free threshold actually means
Australia’s income tax system is tiered. You do not pay one flat rate on everything you earn. Instead, the first slice of your income is taxed at nothing at all, the next slice at a low rate, and so on up the scale. That first untaxed slice is the tax-free threshold, and as last checked June 2026 it sits at $18,200 a year.
In practical terms, if you earn under $18,200 across the whole financial year and you have claimed the threshold, you should owe no income tax on that income. Earn more, and only the amount above $18,200 starts attracting tax, at the rate for whichever band it falls into. The threshold is not a discount you apply at the end. It is built into the way each band is taxed, which is also why it pairs neatly with how the tax brackets in Australia are structured.
Spread across a year, $18,200 works out to roughly $350 a week or about $1,517 a month of income you can earn before income tax kicks in. Those weekly and monthly figures are rounded and meant only to give you a feel for the scale, not to use as a precise budget.
How you claim it
You claim the tax-free threshold on the tax-file-number (TFN) declaration, the short form you complete when you start a new job. One question on that form asks whether you want to claim the threshold from this payer. Tick yes, and your employer’s payroll withholds tax from your pay as though the first $18,200 is tax free. Tick no, and they withhold from the first dollar.
The key rule: you generally claim the threshold from only one employer at a time. The Australian Taxation Office expects you to claim it from the payer who pays you the most, which for most people is the main job. Getting your TFN declaration right from day one is the single easiest way to get your pay and tax set up right and avoid a nasty surprise later.
If you are unsure which job counts as your highest paying, here is the short version:
- Pick the job you expect to earn the most from over the full year.
- Claim the tax-free threshold on that job’s TFN declaration.
- On every other job, do not claim it, so tax is withheld from the first dollar.
- If the picture changes, update the declaration with the relevant employer.
The two-job trap
This is where people come unstuck. If you claim the tax-free threshold from two employers at the same time, each one withholds tax as though you get the first $18,200 tax free. The problem is you only get that threshold once across all your income combined, not once per job.
The result is that not enough tax is withheld over the year. Your pays look a little fatter each fortnight, which feels good, right up until you lodge your return and the ATO works out your total income against the single threshold you are actually entitled to. The shortfall lands as a bill.
One threshold, one job. Claim it twice and you are not saving tax, you are borrowing it from your future self.
This is why people with a second job often choose not to claim the threshold on it. Yes, more tax comes out of the second job’s pay each time. But that extra withholding is doing a job: it is covering the tax you genuinely owe, so you are far less likely to face a debt at tax time. If anything, you may have a buffer. A quick run through an income tax calculator for Australia before you tick or untick anything can show you the difference in plain numbers.
When your circumstances change mid-year
The threshold is not locked in for life. If your situation shifts partway through the year, you can adjust.
Say you leave your main job in October and your former side gig becomes your only income. The job you were not claiming the threshold on is now your highest, and only, payer. You would lodge a new TFN declaration with that employer to claim the threshold there. Do nothing, and tax keeps coming out from the first dollar, which is not a disaster, you would generally get it back at tax time, but it does mean smaller pays in the meantime.
The table below sketches a few common situations. It is general guidance, not a ruling on your specific case.
| Your situation | Where to claim the threshold | Likely outcome |
|---|---|---|
| One job only | On that job | Tax withheld correctly across the year |
| Two jobs, claimed on the higher-paying one | On the main job only | Usually close to square at tax time |
| Two jobs, claimed on both | Fix it, untick one | Risk of a tax bill |
| Two jobs, claimed on neither | Consider claiming on the main one | Often a refund, but smaller pays meanwhile |
The point of the threshold is to match what is withheld to what you actually owe, so you are neither lending the ATO money interest free all year nor caught short in July.
A note on what this is and is not
This article is general information, not personal financial, tax or legal advice. Everyone’s situation is different, and the right call for you depends on your total income, your number of jobs, and other factors this piece cannot see. Rates, thresholds and rules also change over time, and the figures here were last checked June 2026. Before you act, confirm the current rules with the ATO or a registered tax agent. When the time comes to lodge, our guide to the Australian tax return walks through the steps.
The bottom line
The tax-free threshold lets you earn the first $18,200 each financial year without paying income tax, and you claim it by ticking yes on the TFN declaration with one employer, normally your highest paying. The trap to dodge is claiming it on two jobs at once, which leaves you under-taxed and facing a bill. If your income or your mix of jobs changes during the year, update your declaration so the right amount comes out. And because thresholds and rates do move, treat the numbers here as a starting point and confirm the current figures with the ATO.