Working a second job and running a business: tax-free threshold, withholding and the bill at the end of the year
Plenty of Australians keep a day job and run a business on the side, whether that is weekend photography, a bit of consulting or a market stall. The part that surprises them is the tax bill. Their employer withholds tax from every pay, so the job feels sorted, but the business income arrives with nothing taken out. At the end of the year the two are added together and the tax on the total can be much larger than expected. This guide explains how the pieces fit, so the bill is a number you saw coming. Rates and thresholds change, so check the ATO for the current year.
Updated 25 October 2026. General information only, not tax advice.
One taxable income, not two
Australia taxes individuals on their total taxable income for the year. Your wages are assessable income. Your business income, less your business expenses, is added to it. The result is your taxable income, and the marginal rates apply to the whole amount.
This means the first dollar of business profit is taxed at the top rate of your wages, not at a lower rate. If your wages already use up the lower brackets, each extra dollar of profit is taxed at your marginal rate, plus the Medicare levy. See sole trader tax rates.
The tax-free threshold goes to one payer
The tax-free threshold is the amount of income each year that is not taxed for a resident. It is built into your withholding. You can tell only one employer to apply it, and it should normally be your main job. If you have two employers, the second withholds at a higher rate to make up for it.
Business income has no withholding at all, unless a payer withholds because you have not given an ABN. The threshold is not lost, because it applies when your return is worked out. The point of the withholding arrangement is only to get close to the right tax during the year.
Why the bill can still be a surprise
Your employer withholds on the assumption that your wages are your only income. That is correct for the wages, but it does not allow for the business profit stacked on top. When your return is assessed, the extra income pushes you into higher brackets and adds Medicare levy, and none of that has been paid in advance.
The result is a balance owing at lodgment. A side business that earns a profit of $20,000 on top of a full-time salary can easily produce a bill of several thousand dollars. A loss, in contrast, can reduce the tax on your wages, but the non-commercial loss rules may limit that. See business losses and the non-commercial loss rules.
PAYG instalments for the business
Once your business income passes the ATO’s threshold, the ATO may put you on PAYG instalments. These are pre-payments of income tax that you make with your activity statement. The instalment is based on your last return or on your current-year income. You can vary the amount if your income drops. See PAYG instalments explained.
If you are not on instalments yet, your first full year of business income may produce a large assessment and then an instalment amount for the next year. That is a normal first-year pattern, so it helps to know it in advance.
How much to set aside
A practical rule is to work out your marginal rate on the business profit, add the Medicare levy, and move that share of every payment into a separate account when it arrives. If your wages already use the lower brackets, that share can be well above what a full-time business owner would pay. If you are unsure, set aside more than you think, because an unspent buffer is easy to release and an unpaid bill is not. See setting aside money for tax.
GST, ABN and your employer
You need an ABN to invoice as a business, and you register for GST once turnover reaches the threshold, which counts only the business income, not your wages. See do I need an ABN.
Your employment contract may restrict outside work or conflict of interest, and some employers want to know about a side business. That is a workplace matter and not a tax matter, so check your contract.
HELP debts, super and other add-ons
Business profit also counts when working out any HELP repayment and the Medicare levy surcharge test. Your employer pays super on your wages, but super on business income is your own choice unless you are paid mainly for labour under a contract that makes you a worker for super purposes. See HELP repayments for sole traders and contractor or employee.
How FlowFi helps
Upload your business account statement and FlowFi sorts income and expenses, works out the GST, and shows a suggested amount to set aside based on your real transactions. It does not know your wages, so keep the figure from your payment summary alongside it when you plan.
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Frequently asked questions
Should I ask my employer to withhold extra tax?
You can lodge a request with your employer to withhold an additional amount from each pay, which is one way to cover the tax on the side business without a separate transfer. The ATO explains the options for additional withholding.
Do I need to register for GST just because I have a side business?
Only if the business turnover reaches the registration threshold, or you choose to register. Your wages do not count towards that number.
Can I claim the tax-free threshold on both?
No. The threshold applies once, when your return is worked out. For withholding, you tell only one employer to apply it.
General information only, not tax advice. Check your own situation with a registered tax agent or the ATO.
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