Key takeaways
- A refund is over-withholding coming back. Small refund, accurate withholding. It is not a payment from the government.
- Two people on the same annual income pay the same annual tax. Only the withholding pattern changes the refund.
- Claiming the tax-free threshold on two jobs at $30,000 and $25,000 under-withholds by $6,356 across the year.
- A HELP debt starts taking money above $69,528 of repayment income in 2026-27.
- A $1,000 deduction returns about $320 at $85,000 of income, not $1,000.
- A refund that turns into a bill is the real problem, and it has a fix you can apply mid-year.
What a refund actually is
Your employer never knows your final tax position. Each payday it takes that one pay, runs it through the ATO withholding schedule as if you earned at that rate all year, and remits the result. Twenty-six fortnights later the ATO adds up what you really earned, works out the tax on it, and compares the two totals.
Withheld above tax owed produces a refund. Withheld below it produces a bill. Nothing else is happening. The step-by-step of the withholding side is in how PAYG is calculated.
This is why "my refund is smaller than my mate's" is almost never a story about tax rates. You are both taxed on the same 2026-27 scale on the same brackets. What differs is how accurately your pay was withheld along the way.
The six real causes
1. The tax-free threshold claimed on two jobs
The first $18,200 you earn each year is tax free, once, across all your jobs. If two employers both apply it, both treat your income as if it started from zero, and both under-withhold. Take $30,000 from a main job and $25,000 from a second one. The tax owed on the combined $55,000 is $7,945, but two threshold-claiming payrolls withhold only $1,589 between them. The gap of $6,356 lands at assessment.
The check: open your income statements in myGov and look at each employer's tax withheld against its gross. A second job showing almost no tax withheld on a five-figure gross is the tell.
The fix: give the lower-paying employer a new TFN declaration answering "no" to the tax-free threshold question. It takes effect from the next pay run. The full comparison, in dollars, is in the tax-free threshold guide.
2. A HELP debt that is now above the repayment threshold
Compulsory HELP repayments begin once repayment income passes $69,528 in 2026-27. Above that the rate is 15c in the dollar up to $129,717, and 17c above it. At $75,000 the compulsory repayment is $821; at $95,000 it is $3,821. Cross the threshold mid-career and a refund you had every year suddenly disappears.
The check: myGov, ATO online services, then your loan accounts. If the balance is above zero and your income crossed $69,528, a repayment is due at assessment whether or not anything was withheld for it.
The fix: tell your employer about the loan so it withholds for the repayment through the year instead of leaving it all to assessment. Run your own figure through the HECS repayment calculator.
3. A mid-year pay rise
Withholding recalculates from each pay, so a rise is collected correctly going forward. What changes is your offsets. The low income tax offset is worth $575 at $40,000 of income, $175 at $55,000, and $0 at $70,000, where it has tapered out entirely. A rise that walks you up that taper removes an offset that was quietly padding your refund every year, and a rise across $69,528 adds a HELP repayment on top.
The check: compare this year's gross on your income statement with last year's. If it moved by more than a few thousand dollars, that is your answer.
The fix: nothing to fix, but reset the expectation. Model the new salary in the tax refund calculator so next July is not a surprise.
4. Fewer deductions than last year
Deductions reduce taxable income, so they return your marginal rate plus the 2% Medicare levy, not the amount you spent. At $85,000 of income a $1,000 claim is worth about $320. At $45,000 it is worth $220, because the offset taper lifts the effective rate in that band. Drop $2,000 of claims from one year to the next and roughly $640 of refund goes with it at that income.
The check: pull last year's notice of assessment and compare total deductions line to line. A year with no work-from-home hours, no self-education and no tools looks very different from one with all three.
The fix: keep records through the year rather than reconstructing them in July. The ATO's myDeductions tool in the ATO app exists for this and uploads straight into myTax.
5. The Medicare levy surcharge
If you had no private hospital cover and your income for surcharge purposes was above the 2026-27 single base tier of $105,000, the Medicare levy surcharge applies on top of the ordinary 2% Medicare levy. The ATO rates for 2026-27 are 1% from $105,001 to $123,000, 1.25% from $123,001 to $164,000, and 1.5% above $164,000, with the family thresholds set at double the single figures. It is charged on your whole income for surcharge purposes, not just the amount above the threshold, and no employer withholds for it. It lands at assessment and eats the refund.
The check: did you hold an appropriate level of private patient hospital cover for the full year, and was your income for surcharge purposes above $105,000? Reportable fringe benefits and reportable super contributions count toward that income even though they are not in your taxable income.
The fix: either take out hospital cover, or budget for the surcharge. Our Medicare levy calculator covers the ordinary 2% levy; the surcharge itself needs the ATO thresholds linked in the sources below.
6. A second income with no withholding
Bank interest, dividends, rent, a delivery or rideshare gig, a bit of freelancing. None of it has PAYG withholding attached, so the tax on it lands entirely at assessment at your top marginal rate. Add $8,000 of untaxed side income to $85,000 of salary and the tax bill rises by $2,560, straight off whatever refund the salary side had produced.
The check: look at the pre-fill in myTax. Interest, dividends and platform income are reported to the ATO directly, so they appear whether or not you remembered them.
The fix: set money aside as the side income arrives, ask your main employer for an upward withholding variation, or enter PAYG instalments voluntarily if the side income is becoming a business. The instalments route is covered in the PAYG instalments guide.
Same income, same tax, very different refunds
This is the part that explains most of the unfairness people feel. Two people each earn $52,000 for the year. Both owe exactly the same annual tax, because tax is charged on the year, not the pattern. Only one gets a refund worth talking about.
Person A: $52,000 earned steadily across all 12 months
Person B: $52,000 earned in 6 months, paid at a $104,000 annual rate
Person B is not better off. They were short $4,960 of their own cash for months while the ATO held it. Person A had the money in their account the whole time. Identical tax, opposite feelings in July.
The same effect runs in reverse for anyone whose withholding fell short. If your pay is lumpy, check the fortnightly figure against the schedule with the PAYG withholding calculator or the PAYG calculator on the homepage.
When a small refund is actually a problem
One case only: when it is not small, it is negative. A bill instead of a refund means the withholding missed low, and unlike a small refund that has consequences with dates attached.
If you lodge your own return between 1 July and 31 October and it results in a tax bill, payment is due by 21 November. Lodging late does not move that date, and interest can apply to anything still outstanding after it. If you cannot pay, the ATO offers payment plans, and asking early is far better than asking after the due date.
If your problem is the opposite, too much tax coming out of every pay and a refund you had to wait a year for, the six causes of over-withholding are set out in why is my PAYG tax so high. Between the two guides, most withholding surprises have an explanation you can act on before 30 June rather than after it.
What to change for next year
- Fix the second-job threshold now, not in July
A new TFN declaration with the tax-free threshold answered "no" on the lower-paying job takes effect from the next pay. Every fortnight you leave it costs you at assessment.
- Tell your employer about the study loan
It is a single box on the TFN declaration. Withholding the repayment across 26 pays is painless. Finding $3,821 at assessment is not.
- Keep deduction records as you go
Work-from-home hours, tools, union fees, self-education, the cost of managing your tax affairs. Records kept in July are always thinner than records kept in March.
- Decide on hospital cover before the year starts, not after
The surcharge is assessed on the days you were uncovered. Backdating cover is not an option once the year has closed.
- Set aside tax on income with no withholding
Interest, dividends, rent and gig income are all reported to the ATO. Putting your marginal rate aside as the money arrives turns a July shock into a non-event.
Frequently asked questions
Why is my tax refund so low this year?
Is a small tax refund a bad thing?
Why did I get a tax bill instead of a refund?
Does claiming the tax-free threshold on two jobs reduce my refund?
Does a HECS or HELP debt reduce my tax refund?
How much does a work deduction actually give back?
How do I get a bigger refund next year?
Sources
- ATO: Why you may receive a tax bill (the ATO's own list of causes, including the threshold claimed on more than one job, a higher study loan repayment rate, income with no withholding and the Medicare levy surcharge)
- ATO: Medicare levy surcharge income, thresholds and rates (2026-27 single tiers of $105,000, $123,000 and $164,000 at 1%, 1.25% and 1.5%)
- ATO: Preparing your tax return (31 October lodgement due date, 21 November payment due date)
- ATO: Access your income statement (where to read gross and tax withheld, and what Tax ready means)
- Tax rates, offsets and HELP thresholds used in the figures above: 2026-27 resident scale
Related resources
Tax Refund Calculator
Withheld against owed, with the full reconciliation
Open →Why Is My PAYG Tax So High?
The mirror-image question, six causes and fixes
Open →How Long Does a Tax Refund Take?
ATO processing times and how to track it
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Narelle Hartigan is a CPA-qualified tax accountant with over a decade of experience in Australian personal taxation and payroll. She founded PAYG Calculator Australia to make tax withholding easy for every Australian worker to understand.