A refund is not a bonus. It is the difference between the tax withheld from your pay and the tax you actually owed, so a small refund often means your withholding was accurate. The four usual causes of a sudden drop are a second or changed job, a HECS/HELP debt, the Medicare levy surcharge, and income with no tax withheld.
First, what a refund actually is
Your employer withholds tax from every pay using the ATO's withholding tables, which are built to approximate your annual liability. At the end of the year your real liability is calculated, and the difference is refunded to you or billed to you. A large refund means too much was taken out during the year. It is your own money coming back, having sat with the ATO interest-free.
So "my refund is smaller" and "I paid more tax" are different statements, and usually only the first one is true.
Cause 1: a second job, or a job change mid year
This is the big one, and the arithmetic is worth seeing. Each employer withholds as though they are your only source of income. If you claim the tax-free threshold at both, $18,200 of tax-free income is applied twice, but you only get it once.
Take someone with a $60,000 main job and a $20,000 second job in FY2025-26:
| Tax and levy | |
|---|---|
| Main job treated alone ($60,000) | $9,888 |
| Second job treated alone ($20,000) | $0 |
| Sum of the two, as withheld | $9,888 |
| Actually owed on $80,000 | $16,388 |
| Shortfall at tax time | $6,500 |
That $6,500 gap wipes out a refund and can turn it into a bill. Nothing has gone wrong: the tax is correct, the withholding was just spread across two employers who could not see each other. What to do about it.
Cause 2: a HECS or HELP debt
If your repayment income crossed the threshold, a compulsory repayment is calculated on your return and taken out of the same pool as your tax. For FY2025-26 the threshold was $67,000.
Employers withhold extra when you declare the debt, but that extra is not paid against your loan through the year. It sits as a credit against your overall tax bill, and the compulsory repayment is only applied when the return is processed. If your income rose during the year, or you did overtime, or you salary sacrificed, the withholding can fall short of the repayment, because repayment income adds back reportable super contributions and fringe benefits. How the repayment and indexation timing works.
Cause 3: the Medicare levy surcharge
If you earned above $101,000 as a single in FY2025-26 and had no private hospital cover for part or all of the year, the surcharge applies at 1% to 1.5% of your income. It is not withheld from your pay at all, so it arrives as a straight reduction in your refund.
On $120,000 at FY2025-26 rates that is $1,500, which is enough on its own to turn a modest refund into a bill. The thresholds, and when hospital cover costs less than the surcharge.
Cause 4: income with no tax withheld
Bank interest, dividends, rideshare or delivery work, freelance invoices, and gains on crypto or shares generally have no tax withheld at source. Every dollar of it is taxed at your marginal rate when you lodge, so it reduces the refund pound for pound. Bank interest in particular surprises people, because it pre-fills automatically and they had not thought of it as income.
The ATO also offsets refunds against other debts you owe it, and against some Centrelink and child support debts, which can make a refund disappear entirely even though the calculation was right.
What to do about it
- If you have two jobs, claim the tax-free threshold only at the higher-paying one, and consider asking the second employer to withhold extra.
- If you have a study debt, tick it on your TFN declaration with every employer, and remember that overtime and salary sacrifice raise repayment income.
- If you are near $105,000, price a basic hospital policy against the surcharge before the year ends, not after.
- If you have untaxed side income, set aside your marginal rate on it as it arrives, or use PAYG instalments.
- Do not chase a big refund. A refund of zero with accurate withholding leaves you better off through the year than a large refund does, because you had the money.
Frequently Asked Questions
Why is my tax refund lower than last year?
Most often because your withholding was closer to your real liability, or because something new applied: a second job, a study debt repayment, the Medicare levy surcharge, or income with no tax withheld such as bank interest. A refund is the gap between what was withheld and what you owed, not a payment you earn.
Why do I owe the ATO money instead of getting a refund?
The commonest cause is multiple sources of income where each payer withheld as though it were your only income, so the total withheld fell short of the tax on your combined income. The Medicare levy surcharge and untaxed investment income have the same effect, because neither is withheld through the year.
Does having two jobs mean I pay more tax?
No. You pay the same total tax on the same total income. What changes is the timing: too little is withheld through the year, so more is due when you lodge. Claiming the tax-free threshold at only one job fixes most of the gap.
Can the ATO take my refund?
Yes. The ATO can offset a refund against other tax debts you owe, and against certain other Commonwealth debts including some Centrelink and child support amounts. Your notice of assessment will show the offset.
A note on what this is
This guide is general information built from the ATO's published material. It is not tax or financial advice, and it cannot take your circumstances into account. Clearway Apps is not a registered tax agent. Where a decision matters, check it against the ATO page linked in each section or talk to a registered tax agent.