BAS and reporting
W2 amount withheld
W2 on the BAS is where an employer reports the total tax withheld from salary, wages and other payments reported at W1 during the period.
W2 is the BAS label where you report the PAYG withholding you actually took out of payments to your workers and others in the period. It sits directly below W1, which shows the gross payments. In effect, W2 is the tax you collected on behalf of your employees and are now handing over to the ATO, and it is usually one of the largest amounts on a BAS for businesses with staff.
The amount at W2 should come from your payroll records. Each time you pay an employee, you calculate how much to withhold using the ATO's withholding tax tables, or a payroll system that applies them. The amount depends on the employee's earnings, how often they are paid, whether they claimed the tax-free threshold on their TFN declaration, and other factors such as study loan repayments.
W2 should include all amounts withheld from payments shown at W1. It can also include amounts withheld where a payee has not provided an ABN, or where a payment is made under a voluntary agreement. Amounts withheld from different types of payments are normally all added together. If you also withhold for other reasons, such as certain investment payments, check the BAS instructions about which label applies.
It is important to pay the withheld amount to the ATO on time. The money does not belong to the business. For companies, directors can become personally liable for unpaid PAYG withholding under the director penalty rules. Treat the amount as held in trust and, where possible, transfer it to a separate account each pay run so it is not spent on other costs.
Common problems include using the wrong tax table, failing to update the system when an employee changes details, and mismatches between W2 and the amounts reported through Single Touch Payroll. Before lodging, compare your BAS figures to your payroll reports. Differences will show up in the ATO's data and can lead to follow-up queries or incorrect income statements for employees.
W2 is an amount of tax withheld, so it is not a deduction for the business. The gross wages are the deductible cost. Keep payroll records for five years. This is general information only, so confirm your obligations with the ATO or a registered tax professional.
Worked example
Over a quarter, Claire pays staff gross wages of $36,000 (reported at W1). Using the ATO tax tables through her payroll software, she withholds a total of $6,300 from employees' pay. She reports $6,300 at W2 and pays it to the ATO by the BAS due date, together with any net GST. She transferred $525 a week into a separate account to cover it.
Practical tips
- Move the withheld tax to a separate account each pay run so it is available when the BAS is due.
- Compare W2 with your payroll reports and Single Touch Payroll data before lodging.
- Update your payroll system promptly when an employee changes their TFN declaration details.