Benthic microbial communities contribute to nitrogen (N) cycling in coastal ecosystems through taxon-specific processes such as anammox, nitrification and N-fixation and community attributed pathways such as denitrification. By measuring the total (DNA-based) and active (RNA-based) surface sediment microbial community composition and the abundance and activity profiles of key N-cycling genes in a semi-enclosed embayment—Port Phillip Bay (PPB), Australia—we show that although the total relative abundance of N-cycling taxa is comparatively lower close to estuary inputs (Hobsons Bay [HB]), the capacity for this community to perform diverse Ncycling processes is comparatively higher than in sediments isolated from inputs (Central PPB [CPPB]). In HB, seasonal structuring of the sediment microbial community occurred between spring and summer, co-occurring with decreases in the activity profiles of anammox bacteria and organic carbon content. No changes were detected in the activity profiles of nitrifiers or the community-based pathway denitrification. Although no seasonal structuring of the sediment microbial community occurred in CPPB, the activity profiles of key N-cycling genes displayed comparatively higher within-site variability. These results show that despite N-cycling taxa representing a smaller fraction of the total community composition in estuary impacted sediments (HB) these microbial communities consistently engage in N-cycling processes and that seasonal instability in the composition of this community is not reflective of changes in its capacity to cycle N through coupled nitrification-denitrification but potentially via changes within the anammox community.