As we zap into the holiday season and the New Year, thousands of Australians are feeling the pinch in their wallets. It’s an expensive time of year. Plus everyone wants 2017 to be a better year financially. Taking a second job is on the cards for many.
First, see if you are really going to end up ahead. It’s important to know the tax ins and outs of a second job so you can make an informed decision.
Having a second job can be a great way to increase your income and help out with cash flow. The thought of losing 50% of that cold hard cash to the taxman may put you off. But the government doesn’t need to take all of your dollars, they have enough of their own. Welcome to tax myth-busting, well at least the myth that you lose half of your income to tax through having a second job.
Let us show you how a second job can work …
When you start employment with an entity, in Australia you fill out a Tax File Number Declaration form. This informs the Australian Taxation Office of your employment with the entity, and the employer of how much tax to withhold.
There is a box on this form which asks if you do not wish to claim the tax free threshold, this is the second job box. You should claim the tax free threshold on your primary place of employment, the place that will pay you the most. The tax free threshold means that the first $18,200 earned is tax free, as long as you are an adult or a minor who has earned the money via salary and wage. This is calculated off a weekly average though, so if you were to earn $350 per week ($18,200 tax free threshold/52 weeks) then you have no tax withheld, though if this was a second job and you were earning $350, then $76 would be withheld in tax.
Your Second Job Implications
As a rough calculation for second job tax rates (not claiming the tax free threshold), approximately 21% of your gross income will be withheld. This may not always be enough to cover your tax bill for the year. When the ATO calculates how much tax you need to pay, they combine the income from both of your jobs and calculate the tax on your total income. With two jobs it’s very likely that you’ll earn over $37,000, which according to the table below means the ATO will tax you at 32.5%, much more than 21%.
| Taxable Income | Tax Rate |
| $0 – $18,200 | Nil |
| $18,201 – $37,000 | 19% |
| $37,001 – $80,000* | 32.5% |
| $80,001 – $180,000 | 37% |
| Over $180,000 | 45% |
*$37,001 – $87,000 from 1 July 2016
For example if you earn $40,000 a year from the sweet gig as a part time race car driver/professional chocolate taster, but you needed a little extra cash, so you got another part time job, two days a week reviewing movies that paid $20,000 per year. Tax is calculated on your total income as a whole for the year.
| Income | Tax withheld by employer | Total Income | Total Tax Payable on Income | |
| Race cars and Chocolates | $40,000 | $5,347 | $60,000 | $12,247 |
| Movie Reviews | $20,000 | $4,732 | ||
| Totals | $10,079 | $12,247 | ||
| Shortfall in Tax | $2,168 |
As the table shows, even with second job tax rates there has not been enough tax taken out to cover the total income. This means that, with no deductions, offsets applied, or any other influences, you would owe the Australian Taxation Office (ATO) $2,168.
If you earn over $37,000 from your primary job, then one way to ensure that you do not under pay in tax is to fill out a Withholding Declaration from the ATO (or contact our office for assistance). Tell your second employer to take out a flat rate of 32.5% in tax and 2% in Medicare levy, an effective rate of 34.5%. Any overpayment of tax is refunded with your individual tax return at the end of the financial year.
If you work a second job and have to pay 34.5c out of every dollar you earn in tax, you still have 65.5c in your pocket.
In Conclusion
The end result is no different than if you had one job earning the total amount of income. Now you just need to find the job of race car driver/chocolate taster and movie reviewer.
It can be quite complex and it’s better to get it right than have to repay the taxman. If you have questions, see your accountant or phone us for an appointment.
Warwick Borello, CEO
KT Associates
The Small Business Experts
This is a rough guide of tax rates as of December 2016. KT Associates does not accept any responsibility for tax returns lodged calculated based on this article. For further assistance please contact us on 03 9331 6855 or info@ktassociates.com.au to speak to one of our professionals.