Key takeaways
- Employers withhold tax from wages and pay it to the ATO.
- Employees should generally claim the tax-free threshold from one payer only.
- Withholding is reported through Single Touch Payroll each payday.
- How often you pay depends on how much you withhold each year.
Pay As You Go (PAYG) withholding is the system that collects income tax from wages during the year, so employees aren't hit with one large bill when they lodge.
For employers
Before you pay employees, you need to register for PAYG withholding. Each payday you withhold tax using the ATO's tax tables (built into STP-enabled payroll software), report the payment through Single Touch Payroll, and later pay the withheld amounts to the ATO.
| Withholder type | Annual amount withheld | Pay and report |
|---|---|---|
| Small | Up to $25,000 | Quarterly (monthly on request) |
| Medium | $25,001 – $1 million | Monthly |
| Large | Over $1 million | Within days of each payday |
For employees
When you start a job, you complete a TFN declaration. If you don't provide your TFN, your employer must generally withhold at the top rate. The tax-free threshold should generally only be claimed from one payer at a time — claiming it from two jobs is a common cause of a tax bill at year end.
If you have a HELP debt, extra amounts are withheld to cover your compulsory repayment.
Why withholding doesn't always match your tax
Your tax return reconciles the tax withheld with the tax you actually owe.
- Income from investments or a second job
- Large bonuses or irregular payments
- Deductions that reduce your taxable income
- Changes in circumstances during the year
Official sources
General information only. This article doesn't take into account your personal circumstances and isn't a substitute for professional advice. Tax rules and thresholds change — check current details with the ATO or contact us for advice specific to you.
Published by
ANS Taxation & Accounting
Melbourne accounting and tax practice