Updated: April, 2026
If you don’t claim the tax-free threshold, more tax will be taken from each pay cheque. This usually means less money in your weekly or fortnightly pay, but you may receive the extra tax back when you lodge your tax return.
In most cases, not claiming the tax-free threshold does not increase your total tax for the year. It simply changes when you pay it. You pay more during the year and may get a larger refund at tax time.
At My Tax Refund Today, our registered tax agents help Australians lodge fast, accurate and stress-free tax returns. You can also use our tax return calculator to receive your refund estimate within minutes.
The tax-free threshold is the amount an Australian resident for tax purposes can earn before paying income tax.
For Australian residents, the tax-free threshold is $18,200 per financial year. This means you generally do not pay income tax on your first $18,200 of taxable income.
If your income goes above $18,200, only the income above that amount is taxed. Australia uses a progressive tax system, which means higher tax rates apply as your taxable income increases.
The table below shows the 2025–26 Australian resident tax rates, excluding the Medicare levy. The ATO lists the current 2025–26 resident tax rates as $0 tax up to $18,200, 16 cents per dollar from $18,201 to $45,000, 30 cents per dollar from $45,001 to $135,000, 37 cents per dollar from $135,001 to $190,000, and 45 cents per dollar above $190,000. (Australian Taxation Office)
| Taxable Income | Tax Payable |
|---|---|
| $0 to $18,200 | Nil |
| $18,201 to $45,000 | 16 cents for each $1 over $18,200 |
| $45,001 to $135,000 | $4,288 plus 30 cents for each $1 over $45,000 |
| $135,001 to $190,000 | $31,288 plus 37 cents for each $1 over $135,000 |
| $190,001 and over | $51,638 plus 45 cents for each $1 over $190,000 |
These rates do not include the Medicare levy, HELP or study loan repayments, tax offsets, or other adjustments that may apply to your situation.
When you do not claim the tax-free threshold, your employer withholds tax from your pay without applying the tax-free portion first.
This means:
The key point is simple: you are not usually paying extra tax overall. You are paying more tax earlier.
That can be useful for some people, but it can also make everyday cash flow harder.
Let’s say you earn $1,000 per week.
If you claim the tax-free threshold, less tax is withheld from your pay, so your take-home pay is higher.
If you do not claim the tax-free threshold, more tax is withheld, so your take-home pay is lower.
The exact difference depends on your income, pay cycle and personal situation, but it can be noticeable. For some workers, not claiming the tax-free threshold can mean taking home $50 to $100 less per week.
That money could otherwise be used for:
Instead, it stays with the ATO until your tax return is lodged and assessed.
The biggest issue with not claiming the tax-free threshold is cash flow.
When more tax is withheld from your pay, you may receive a larger refund later. But during the year, you have less money available for everyday expenses.
For many Australians, that can create unnecessary pressure.
In simple terms, not claiming the tax-free threshold can work like a forced savings method. But it also means the ATO holds more of your money throughout the year.
If you prefer more control over your money, claiming the threshold from your main employer is usually the better option.
Some people choose not to claim the tax-free threshold because they want more tax withheld during the year.
This may happen if:
This is sometimes called a “bigger refund” strategy.
It can work for some people, especially if they struggle to save. But it is not always the most efficient option, because you lose access to that money during the year.
Claiming the tax-free threshold is usually the right choice if:
For most employees with one job, claiming the tax-free threshold makes sense.
If you are unsure how your income affects your return, our tax return guide explains the basics of lodging and preparing your return.
You may choose not to claim the tax-free threshold if:
This does not mean you should automatically avoid claiming it. It means you need to think about your full income position, not just one job.
If you work more than one job, our guide on how much you get taxed on a second job explains how second-job tax works in more detail.
If you have more than one job, you should usually only claim the tax-free threshold from one employer.
In most cases, this should be your highest-paying job.
If you claim the tax-free threshold from more than one employer, not enough tax may be withheld during the year. This can leave you with a tax bill when you lodge your return.
This is one of the most common tax mistakes workers make.
Example:
This helps your overall withholding better match your total yearly income.
You usually claim the tax-free threshold when you start a new job.
To claim it:
If your situation changes later, you can update your details with your employer using a withholding declaration.
For example, if you leave your main job and keep your second job, you may need to update which employer applies the threshold.
Your taxable income is not always limited to your wages.
It can include:
This matters because your full income affects how much tax you owe at the end of the year.
If your total taxable income is under $18,200 for the financial year, you usually do not pay income tax.
If tax was withheld from your pay during the year, you may receive it back when you lodge your tax return.
This commonly applies to:
You may still need to lodge a tax return, especially if tax was withheld from your income.
PAYG stands for Pay As You Go. It is the system employers use to withhold tax from your wages throughout the year.
If you claim the tax-free threshold, less tax is usually withheld from your regular pay.
If you do not claim it, more tax is usually withheld.
As a rough guide, the tax-free threshold works out to approximately:
Once your income goes above these amounts, tax withholding usually starts applying. The exact amount withheld depends on your pay frequency, income and payroll settings.
The tax-free threshold is simple in theory, but mistakes can happen.
Common mistakes include:
Good records also matter. If you claim deductions, you generally need evidence to support them. You can read more in our guide on what you can claim without receipts.
Best option: usually claim the tax-free threshold.
This gives you higher take-home pay throughout the year. You may still receive a refund if you have deductions or offsets available.
Best option: usually claim the threshold from your highest-paying job only.
This helps reduce the risk of underpaying tax during the year.
Best option: depends on how much you earn.
If your side income is small, you may still claim the threshold from your main job. If your side income is higher, you may need to plan ahead so you are not surprised by a tax bill.
Best option: usually claim the threshold if you only have one job.
This can help you keep more money in your pay during the year. If your income stays under $18,200 and tax is withheld, you may receive it back after lodging your return.
Best option: get advice before deciding.
Extra income can change your tax position. You may need more tax withheld from your wages or may need to plan for tax at the end of the year.
Some people like the feeling of receiving a large refund at tax time.
That is understandable. A lump sum can help with bills, savings, holidays or larger purchases.
But there are trade-offs:
For most people, it is better to keep more money in each pay and manage savings separately.
If your goal is to improve your refund, a better approach is to claim the right deductions, keep accurate records and lodge correctly. Our guide on how to get a bigger tax refund explains what can make a real difference.
Before choosing whether to claim the tax-free threshold, it helps to understand your likely tax position.
You can use our tax return calculator to estimate:
It only takes a few minutes and gives you a clearer starting point.
Tax can get confusing when your situation changes.
This is especially true if you:
My Tax Refund Today is run by registered tax agents and qualified tax professionals. Our team checks your information against the ATO system, helps identify eligible deductions, and works to maximise your refund while keeping your return compliant. The service also offers free tax refund estimates, online tax returns, same-day tax refund options up to $500, and a $0 upfront “fee from refund” option.
That means you can lodge with confidence and get support every step of the way.
No. In most cases, you do not pay more tax overall. You simply have more tax withheld during the year and may receive the difference back when you lodge your return.
It depends on your income and pay cycle. For some workers, the difference may be $50 to $100 or more per week.
Yes. If your situation changes, you can update your tax withholding choice with your employer by completing the relevant declaration.
You may not have enough tax withheld during the year. This can lead to a tax bill when you lodge your tax return.
Usually, yes. If you have more than one job, it is generally best to claim the threshold from your highest-paying employer only.
You may still need to lodge a tax return, especially if tax was withheld from your income. If you paid tax during the year and your total income was under the threshold, you may receive that tax back.
For most people, more money each week is better for cash flow. A big refund can feel helpful, but it usually means you had less access to your own money during the year.
Yes, but if you became an Australian resident for tax purposes part-way through the financial year, your tax-free threshold may be adjusted.
You can usually update your details with your employer. If you are unsure, speak with your payroll team or a registered tax agent.
Yes. A registered tax agent can review your income, withholding, deductions and records to help you lodge correctly and avoid common mistakes.
Understanding the tax-free threshold is only one part of managing your tax properly.
The real difference comes from:
Before you lodge, use our tax checklist to make sure you have the right information ready.
My Tax Refund Today makes the process fast, easy and stress-free. Get your tax refund today, receive your refund estimate within minutes, and lodge with registered tax agents who are here to guide you every step of the way.
Simply fill out the form and one of our Australian tax experts will call you back.
