What it actually is
Australian residents pay no income tax on the first $18,200 of taxable income each financial year. It is not a discount you apply for annually — it is built into the tax brackets. What you do control is the TFN declaration you fill in when starting a job: ticking "claim the tax-free threshold" tells that employer to withhold as if your first $18,200 is tax-free, so more of each pay reaches your pocket during the year.
The real zero-tax floor is higher than $18,200
Two quiet helpers push the practical floor up. The Low Income Tax Offset (up to $700) wipes out the tax bill until income reaches about $22,860 in 2026–27. And the Medicare levy has its own low-income threshold — nothing is payable below $28,011 for singles, then it shades in gradually. So a student earning $22,000 pays precisely zero — and if tax was withheld from their casual pay, all of it comes back at tax time. Check your own numbers in the Income Tax Calculator.
One job claims it. Only one.
The threshold belongs to you, not to each job — claim it at your highest-paying job and leave the box unticked everywhere else. Claiming at two jobs is the single most common cause of surprise tax bills: both employers withhold as if they are your only income, the combined withholding falls short, and the ATO collects the difference at assessment. Working two jobs? Our second-job tax guide walks through the maths.
Arrived or left mid-year? It shrinks
The full $18,200 assumes a full year of Australian tax residency. New arrivals get a pro-rated threshold: $13,464 + $4,736 × months here ÷ 12. Land in January and your first-year threshold is about $15,832 — a detail most calculators ignore and new migrants discover as an unexpected bill. The Tax Refund Calculator has a resident-months setting for exactly this.
Frequently asked questions
Do I pay tax if I earn under $18,200?
No income tax — and thanks to the Low Income Tax Offset, the practical zero-tax floor is higher: about $22,860 in 2026–27 before any income tax is actually payable, and the Medicare levy only starts above $28,011. But if your employer withheld tax during the year, you must lodge a return to get it refunded.
Should I tick “claim the tax-free threshold” on my TFN declaration?
Yes — at your main job (usually the one paying you most). Ticking it means your employer withholds less tax each pay. Leave it unticked at any second job, otherwise both employers under-withhold and the shortfall becomes a bill at tax time.
I arrived in Australia partway through the year — do I get the full threshold?
No. Part-year residents get $13,464 plus $4,736 × months of residency ÷ 12. Arrive in January and your threshold for that year is about $15,832. Our Tax Refund Calculator has a resident-months setting that applies this automatically.
Does the threshold apply to working holiday makers?
Generally no — most working holiday makers (subclass 417/462) are taxed at 15% from the first dollar under separate rates, regardless of the threshold. Residency and visa status change the picture, so check your specific situation with the ATO.
General information only, based on published 2026–27 resident rates — not tax advice. Residency and visa status change outcomes; confirm your situation at ato.gov.au or with a registered tax agent.