Australia Tax-Free Threshold 2025: What It Is and How to Claim It

If you've just started a new job or filled in a Tax File Number (TFN) declaration, you've probably come across the question: "Do you want to claim the tax-free threshold?" The answer matters — it affects how much tax is withheld from every pay cheque. Here's everything you need to know about Australia's tax-free threshold for FY 2025-26.

What Is the Tax-Free Threshold?

The tax-free threshold is the amount of income you can earn each financial year without paying any income tax. For FY 2025-26, that amount is $18,200.

This has remained at $18,200 for several years and applies to all Australian resident taxpayers. It simply means the first $18,200 of your annual income is completely free of income tax. You only start paying income tax on earnings above that amount.

It's one of the most important numbers in the Australian tax system — and knowing how to use it can make a real difference to your weekly or fortnightly take-home pay.

How the Tax-Free Threshold Works With FY 2025-26 Rates

Australia uses a progressive tax system. Your income is taxed in layers, and the tax-free threshold is simply the first — and largest — layer. Here are the FY 2025-26 income tax brackets for Australian residents:

Source: ATO FY 2025-26 resident tax rates (Stage 3 Tax Cuts). Medicare Levy (2%) applies on top.

These rates reflect the Stage 3 Tax Cuts that took effect from 1 July 2024. The 16% rate on the second bracket (previously 19%) is a significant change from prior years — meaning lower-income earners pay noticeably less tax in FY 2025-26.

Use our Income Tax Calculator to see exactly how much tax applies to your income.

How to Claim the Tax-Free Threshold

When you start a new job, your employer will ask you to complete a Tax File Number (TFN) declaration. Question 8 asks: "Do you want to claim the tax-free threshold from this payer?"

If you answer Yes, your employer will use a lower withholding rate — spreading the benefit of your $18,200 tax-free amount across each pay period. This means more money in your pocket each week or fortnight.

If you answer No, your employer withholds tax as if you have no tax-free threshold. You'll receive a refund at tax time if you were entitled to it, but you'll have less cash available during the year.

Who should claim it: Claim the tax-free threshold from your main (or only) employer if you are an Australian resident for tax purposes and you expect to earn less than $18,200 from all income sources combined, or if this is your highest-paying job.

Multiple Jobs: Only Claim From One Employer

If you work two or more jobs, you can only claim the tax-free threshold from one employer — typically the one that pays you the most.

If you claim it from more than one employer, not enough tax will be withheld throughout the year. This leads to a tax debt at lodgement time — meaning you'll owe the ATO money instead of receiving a refund.

For your second (and any additional) job, answer No to the tax-free threshold question. Your employer will apply a higher withholding rate to ensure your combined income is taxed correctly.

The Low Income Tax Offset (LITO): Your Effective Tax-Free Amount Is Higher

Here's something many people don't realise: thanks to the Low Income Tax Offset (LITO), low-income earners can actually receive more than $18,200 tax-free.

For FY 2025-26, LITO provides an offset of up to $700 for those earning $37,500 or less. It phases out gradually between $37,500 and $66,667, disappearing completely at that upper limit.

In practice, the LITO pushes your effective tax-free threshold to approximately $26,000 for eligible low-income earners — because the offset wipes out the income tax that would otherwise apply between $18,200 and ~$26,000.

Want to see your personalised numbers? Try the Take-Home Pay Calculator for a full breakdown including LITO.

Who Cannot Claim the Tax-Free Threshold

The tax-free threshold is only available to Australian residents for tax purposes. You cannot claim it if:

• You are a foreign resident for Australian tax purposes
• You are a working holiday maker (417 or 462 visa holders are taxed from the first dollar at 15%)
• You are a temporary resident who does not meet the residency tests

If you're unsure of your tax residency status, check the ATO's residency tests or speak with a registered tax agent.

What If You Forget to Claim It?

Don't panic. If you forgot to claim the tax-free threshold when you started a job, too much tax will have been withheld from your pay. When you lodge your annual tax return, the ATO will calculate the correct amount of tax owed and issue you a refund for the excess.

You can also update your threshold claim at any time by completing a new TFN declaration with your employer. They'll then adjust your withholding going forward.

To estimate how much refund you might be owed, use our Income Tax Calculator.

Summary: Key Facts About the Tax-Free Threshold

• The tax-free threshold is $18,200 for FY 2025-26 — unchanged from prior years
• Australian residents can claim it — claim it from your main employer only
• Claiming it means higher take-home pay each period, not just a refund at year-end
• The LITO can effectively extend your tax-free amount to around $26,000 if you're a low-income earner
• Foreign residents and working holiday makers cannot claim it
• If you forgot to claim it, you'll get a refund when you lodge your tax return

For a complete picture of your tax situation — including Medicare Levy, superannuation, and HECS repayments — use our suite of free calculators:

• Take-Home Pay Calculator — see your net pay after all deductions
• Income Tax Calculator — calculate your exact tax bill
• Medicare Levy Calculator — check your Medicare Levy and Surcharge
• Superannuation Calculator — see how your super grows over time
• HECS-HELP Calculator — estimate your student loan repayments