Understanding the Unexpected Tax Bills for Australians in 2025
Many Australians have been taken aback upon receiving their tax returns for 2025, discovering that they owe money to the Australian Taxation Office (ATO) instead of receiving a refund. This surprising outcome has been widely discussed on social media platforms, where some have disclosed their sizable refunds while others express their shock at unexpected tax liabilities.
Contributing Factors to Tax Bills
Belinda Raso, director of Tax Invest Accounting, indicates that the rise in tax bills is linked to a few key reasons. A significant factor is the discontinuation of the $1,500 low and middle-income tax offset that ended on 30 June 2022. Many workers, particularly those employed in multiple jobs, are finding themselves in tax brackets that lead to owing money rather than receiving returns.
Raso highlights an inherent flaw in the Australian payroll system: even when employees correctly indicate on their second job’s tax declaration that they do not wish to claim the tax-free threshold, their second employer does not withhold enough tax. For instance, if an employee earns over $45,000 at their primary job, they are taxed in the 32% bracket, including the 2% Medicare Levy. However, when they do not claim the tax-free threshold at their second job, the withholding tax applies at a lower rate, leading to potential underpayment throughout the year.
Recommendations for Employees
To avoid future tax bills, Raso advises Australians with multiple jobs to consider various strategies:
- Request additional withholding from employers,
- Set aside funds throughout the year in anticipation of tax obligations, or
- Opt not to claim the tax-free threshold on their primary job.
If the current trend continues, many workers may face similar situations again. The latest data from the Australian Bureau of Statistics indicates that as of March, 2025, there were approximately 963,100 individuals holding multiple jobs, representing about 6.5% of the workforce.
Common Reasons for Tax Debts
In addition to the factors mentioned above, other elements could contribute to a tax liability:
- Individuals with a Higher Education Contribution Scheme (HECS-HELP) debt must inform their employers. Failing to do so can lead to substantial tax debts, especially when income from different jobs is combined and exceeds the repayment threshold.
- Reportable fringe benefits or salary sacrifices can also result in additional tax liabilities, as these amounts are considered when calculating overall tax obligations.
- The Medicare Levy Surcharge applies to singles earning more than $101,001 and families earning over $202,001 who lack hospital cover.
Taxpayers should be aware that other income streams, such as side projects, interest, investments, and rental income, can contribute to their overall tax burden.
Payment Obligations and Options
If an individual receives a tax bill, it’s imperative to settle it by the due date stated on their Notice of Assessment. However, if paying the total amount upfront is unfeasible, the ATO allows for the establishment of payment plans to distribute the debt across manageable instalments. It’s crucial to note that any outstanding amount beyond the due date incurs a general interest charge, currently set at 10.78% per year, compounding daily.
In summary, Australians should stay informed about changes in tax regulations to avoid unexpected liabilities. Engaging with tax professionals or financial advisors can provide clarity and assist in navigating complex tax obligations.
