If you are one of the millions of Australians juggling a standard “9-to-5” job (TFN) alongside a side hustle or freelance work (ABN), you might be surprised by your tax bill at the end of the year. Many people mistakenly believe that their “side income” is taxed differently or separately.

The reality is much simpler—and potentially more impactful on your wallet: The Australian Taxation Office (ATO) combines all your income to determine your final tax bracket.

The “Combined Income” Rule

There is no such thing as a separate “ABN tax bracket.” Whether you earn money as an employee or as a sole trader, the ATO views it all as taxable income.

When you lodge your tax return, your salary (TFN income) and your business profit (ABN income minus deductible expenses) are added together. This combined total determines which marginal tax rate applies to your earnings. Because Australia uses a progressive tax system, earning extra money on your ABN can “push” your total income into a higher bracket, meaning you pay a higher percentage of tax on those additional dollars.

Why This Leads to “Tax Shock”

The most common reason for unexpected tax bills when holding both a TFN and an ABN is the withholding gap:

• TFN Income: Your employer automatically deducts tax from your pay (PAYG withholding). By the time you get your paycheck, the tax is already paid.
• ABN Income: Clients usually pay you the “full” amount without withholding any tax. Because you receive the full sum, it’s easy to mistake that money for “take-home pay.”

When tax time arrives, the ATO calculates the tax due on your combined income. Since no tax was withheld from your ABN earnings throughout the year, you may find that you haven’t paid enough tax to cover the total amount owed, leaving you with a lump-sum bill.

Managing Your Tax Obligations Effectively

To avoid a surprise bill at the end of the financial year, consider these three strategies:

1. Set Aside a “Tax Buffer”

As a general rule of thumb, set aside 25% to 30% of every ABN invoice you receive into a separate high-interest savings account. Think of this as your “ATO fund.” If you end up needing less at tax time, it’s a bonus; if you need the full amount, the money is already there.

2. Claim Every Legitimate Deduction

Because your ABN income is added to your TFN salary, every business-related expense you claim acts as a “bracket-lowering” tool. Ensure you keep receipts for:

• Equipment (laptops, cameras, tools).
• Software subscriptions and professional memberships.
• Home office expenses and utility portions.
• Travel and vehicle expenses directly related to your ABN work.
• Note: Only claim deductions for expenses directly related to earning your assessable income.

3. Voluntary PAYG Instalments

If you expect to have a significant tax liability from your ABN work, you can enter the PAYG Instalments system. This allows you to prepay your tax to the ATO in quarterly chunks, rather than paying it all in one go when you lodge your return.

Understanding the 2026 Tax Landscape

As of the 2025–26 financial year, Australia’s marginal tax rates are:

• $0 – $18,200: 0% (Tax-free)
• $18,201 – $45,000: 16%
• $45,001 – $135,000: 30%
• $135,001 – $190,000: 37%
• Over $190,000: 45%

Note: These rates are before the 2% Medicare Levy. If your combined TFN and ABN income crosses one of these thresholds, the higher rate applies to everything above that threshold.

Final Verdict

Don’t let your side hustle become a financial burden. Treat your ABN income as if it were salary. By setting aside tax as you go and meticulously tracking your expenses, you ensure that your “extra” income remains a boost to your finances, not a debt to the ATO.

Disclaimer: This information is for general educational purposes and does not constitute financial or tax advice. Because individual circumstances vary, always consult with a registered tax agent or accountant to discuss your specific tax planning strategies.