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

When it comes to doing your taxes, theres one phrase youve probably heard more than once thetax-free threshold. But what does it actually mean? And more importantly,what happens if you dont claim the tax-free threshold?

If youre scratching your head wondering whether claiming this threshold really matters, youre in the right place. In this article, we break everything down in plain English, share real-life stories, and offer a step-by-step guide to help you make the best choice without the stress.

Pro tip:For any questions about your tax situation, its best to work with a trusted accountant likePerfect Accounting PTY Ltd theyve got your back!

What Is theTax-Free Threshold?

Before diving into what happens if youdont claim the tax-free threshold, lets first understand what it is.

Thetax-free thresholdis the amount of money you can earnwithout paying any income tax. In Australia, this amount is currently$18,200 per financial year. If you earn less than this, you dont pay any tax. Simple, right?

When you start a new job, youll fill out aTax File Number Declaration form, where you can tick a box to claim the tax-free threshold from that employer.

So, What Happens If I Dont Claim It?

Lets cut to the chase.If you dont claim the tax-free threshold, heres what will happen:

1.More Tax Withheld from Your Pay

Your employer will assume youarent claiming any tax-free income, so theyll withholdmore taxfrom each paycheck. Its like giving the ATO an interest-free loan.

Lets say you work part-time and earn $400 a week. If you dont claim the tax-free threshold, more tax is taken out each week even though your total income is below $18,200!

???Real-life example: Emmas First Job

Emma, a university student, landed her first job at a local cafe. She wasnt sure what the tax-free threshold meant, so she left the box unchecked. A few months later, she realised her pay seemed lower than expected. Turns out, she was getting taxed unnecessarily. By not claiming the threshold, Emma was losing around $30 a week thats over$1,500a year!

2.You Might Get a Refund Later (But It Takes Time)

Sure, if you dont claim the tax-free threshold and end up paying too much tax, you may get it back when youlodge your tax return. But why wait months to get money thats already yours?

Thats like buying something for $100 and getting told, Youll get $30 back in July next year. Wouldnt you rather keep that money in your pocket now?

3.Risk of Overpaying or Underpaying

Heres where things get tricky. If you havemore than one job, you can only claim the tax-free threshold fromone employer. If you mistakenly claim it from more than one, you may end upunderpaying taxand owe the ATO at tax time.

Confused? Dont worry Perfect Accounting PTY Ltdcan help you figure out which job should claim the threshold and sort everything out for you!

? Step-by-Step: How to Claim theTax-Free Threshold

If youre starting a new job or want to make sure youre not overpaying, heres what to do:

Step 1:Complete theTax File Number Declaration Form

Youll receive this from your employer when you start a new job. You can also find itonline here.

Step 2:Tick Yes to Claim the Tax-Free Threshold

If its yourmain source of income, say yes. If its yoursecond job, say no unless your total income will still be under $18,200 for the year.

Step 3:Submit the Form to Your Employer

Theyll use this info to calculate how much tax to withhold from your pay.

When Should YouNotClaim It?

There are situations where its betternot to claim the tax-free threshold, such as:

• You havetwo or more jobsand already claimed the threshold from one.

• You expect to earnmore than $18,200combined across all jobs.

• Youre workingtemporarilyor expect to earn only a small amount from this employer.

???Example: Johns Side Gig

John works full-time as a teacher and also tutors part-time. Since hes already claimed the threshold with his teaching job, he ticks No on his tutoring job. This prevents him from underpaying tax and avoids a surprise bill later.

Common Questions People Ask

?What if I Accidentally Dont Claim It?

No need to panic. You wont lose the money forever. The ATO adjusts it when you lodge your tax return. But if youd ratherkeep more of your pay during the year, its worth getting it sorted sooner.

?Can I Change My Choice Later?

Yes! You can submit a newTax File Number Declarationto your employer anytime if your situation changes.

?Will I Get in Trouble with the ATO?

Only if you try to claim thetax-free threshold from more than one employer, which could result in underpayment of tax. Honesty and clarity are key.

Why You Should Speak to an Expert

Understanding taxes shouldnt be a guessing game. Thats why so many Australians rely on the experienced team atPerfect Accounting PTY Ltd. They offerexpert tax advice,bookkeeping services, andbusiness accounting solutionsthat make life easier and can help you avoid common pitfalls like not claiming the tax-free threshold correctly.

Whether youre:

• A student working part-time,

• A freelancer juggling gigs,

• Or running your own business,

Perfect Accounting PTY Ltdis your go-to partner for staying tax-smart all year long.

Final Thoughts

Lets wrap it up:

• Thetax-free thresholdlets you earn the first$18,200 tax-free.

• If youdont claim it, more tax gets taken from your pay upfront.

• You might get arefund later, but its better to avoid the hassle altogether.

• Claiming it properly meansmore take-home payandfewer surprisesat tax time.

So, next time you fill out that tax form pause, breathe, and remember what youve learned here.

And when in doubt?

Talk toPerfect Accounting PTY Ltd theyre here to make your tax journey smoother, smarter, and stress-free.