Second Job Tax Rate Guide

As income tax season approaches, many Australians take stock of their financial situation, often uncovering changes since the previous year. For a growing number of individuals, one of those changes is earning income from a second job. Whether driven by COVID-19, the rise of side hustles, or the expanding gig economy, more Australians are navigating the complexities of paying tax on multiple incomes.

The second job tax rate often raises questions about whether taking on additional work is worthwhile. However, despite potential changes to your tax obligations, earning a second income can provide significant financial benefits for many. Understanding how tax from a second job works is key to making informed decisions and managing your tax effectively.

Understanding your tax obligations when you add a second income is crucial. Taxes are calculated based on your total income, including earnings from second jobs, side hustles, interest, and other income streams. Managing these can be straightforward when you’re aware of the rules and guidelines.

Ensuring your employer deducts the correct amount of tax becomes more complex when you have multiple income sources. For individuals with a single income source, employers typically withhold the right amount of tax based on the tax-free threshold. However, for second or third jobs, you cannot claim this threshold again, and withholding adjustments need to be made.

If too much tax is withheld, the excess will be refunded when you lodge your tax return. Conversely, if insufficient tax is deducted, you may end up owing money to the Australian Taxation Office (ATO). To avoid this, it’s important to understand how tax withholding works for multiple incomes. Visit the ATO’s guide on tax-free threshold and multiple jobs for detailed information and resources to ensure your taxes are managed correctly.

If you have a single source of income, you can benefit from the tax-free threshold, which allows you to earn up to $18,200 without paying tax. When you claim this, your employer will withhold less tax from your earnings throughout the financial year, giving you more take-home pay.

*It’s essential to claim the tax-free threshold with only one employer—typically the one where you earn the most. If you claim it from more than one employer, you may have too little tax withheld. This could leave you with a significant tax bill when it’s time to lodge your return. To avoid this, ensure you complete your tax declarations accurately for each job.

Adding a second income makes taxation more complex. The tax-free threshold usually applies only to your primary job, while income from any additional jobs is taxed according to the progressive tax rates. Although some people feel this system is unfair when comparing similar cases, it ensures taxes are collected fairly based on your total earnings.

If you’re running a business from home, you may be eligible to claim a range of tax deductions. However, it’s essential to ensure you meet the ATO’s criteria and keep detailed records to substantiate your claims. Failing to do so could result in penalties or additional scrutiny from the ATO.

Common deductible expenses include:

• Internet (business-use percentage)
• Heating and cooling (business-use percentage)
• Phone (business-use percentage)
• Self-education (related to your business activities)
• Advertising and marketing
• Professional services (e.g., accountants or consultants)

If you have a dedicated home office space used exclusively for your business, you may also be able to claim a portion of your rent or mortgage interest as an occupancy expense.

Before preparing your tax deductions, ensure you meet the ATO’s requirements for claiming expenses. These guidelines help you stay compliant and avoid unnecessary complications.

1. You must have incurred the expense: Only actual expenses can be claimed. Speculating or using estimates based on previous years is not allowed.
2. The expense must relate exclusively to your business: Expenses used for both personal and business purposes cannot be claimed in full. Ensure you only deduct the business portion.
3. You must provide proof of the expense: Keep detailed records, such as receipts or invoices, to substantiate every deduction.

Of these, providing adequate proof tends to be the most challenging. Maintaining accurate and organised records of purchases, advertising costs, and other business expenses will streamline your tax return process. Avoid the outdated “envelope of receipts” approach. Instead, consider using digital tools or apps to store and categorise your tax records for easier access and peace of mind.

If you decide to engage in a hobby, you can enjoy sharing your skills with family, friends, or others casually. For example, you might alter formal wear, perform small mechanical repairs, or create custom art. While hobby income is not taxable, it’s important to note:

• You cannot claim tax deductions for hobby-related expenses.
• Hobby income may need to be reported to the ATO if requested, especially if it impacts government benefits.

If you’re starting a small business, there are essential steps to ensure compliance with ATO regulations:

1. Register Your Business Name and ABN:
   • Register a business name if trading under a name other than your own.
   • Apply for an Australian Business Number (ABN).
2. Set Up Record Keeping:
   • Maintain accurate financial records for at least five years.
3. Open a Business Bank Account:
   • This is highly recommended for clear separation of personal and business finances.
4. Obtain Licenses and Permits:
   • Research and apply for the licenses required for your industry and location.
5. Set Aside Tax Funds:
   • Sole traders need to set aside money for personal income tax obligations.
6. Choose a Business Structure:
   • Many start as sole traders, but this structure leaves personal assets at risk. Explore options like partnerships, trusts, or companies for added protection.
7. Get Insurance:
   • Protect your assets with business insurance, such as public liability or professional indemnity.
8. GST Registration:
   • If your annual turnover exceeds $75,000, you must register for Goods and Services Tax (GST). You can also register voluntarily below this threshold.

By following these steps, you can operate your business confidently while complying with Australian tax and legal requirements.

Australia’s tax system is progressive, meaning the more you earn, the higher the percentage of tax you pay. For individuals with a single source of income, the tax-free threshold allows the first $18,200 of income to be tax-free, reducing their overall tax burden.

However, if you have more than one source of income—such as a second job or a side gig—your additional earnings can push you into a higher tax bracket. This means a higher percentage of your total income is taxed at the applicable rate, which may result in a smaller refund or even a tax bill at the end of the financial year.

One of the best ways to manage this situation is to plan ahead. Many tax experts recommend keeping the income from your second job, gig, or side hustle in a separate bank account. By saving a portion of this income and avoiding the temptation to spend it all, you’ll be better prepared to cover any unexpected tax liabilities. If you don’t end up owing the ATO, you’ll simply have extra savings in your account—a win-win scenario.