PAYG
Withholding tax table
A withholding tax table is an ATO schedule that tells an employer how much PAYG tax to withhold from each payment, based on earnings, pay frequency and the worker's declared details.
A withholding tax table, often called a tax table or withholding schedule, is the tool the Australian Taxation Office publishes so that employers and other payers can work out how much tax to take out of a payment before they hand it over. The tax is not an extra charge. It is an advance payment of the worker's income tax, passed on to the ATO by the payer and credited to the worker when their tax return is assessed.
The amount in the table depends on several inputs. These include the gross amount being paid, how often the worker is paid (weekly, fortnightly, monthly), whether the worker has claimed the tax-free threshold on their TFN declaration, whether they have a study or training support loan, and whether they are an Australian resident for tax purposes. Different schedules also apply to special situations such as working holiday makers and payments made under a voluntary agreement.
The tables are designed to approximate the tax a person would pay if they earned that same amount for the whole year. Because of this, someone with irregular pay, bonuses or a second job may find that the withheld amount is too high or too low compared with their final tax bill. Workers can ask the ATO for a withholding variation if they expect a materially different result, and they can adjust their position when they lodge their return.
The rates and thresholds behind the tables are set by legislation and are updated from time to time, so the figures in last year's table should never be assumed to be correct this year. Most employers now use payroll software or the ATO's online tax withheld calculator, which apply the current schedules automatically. If you do payroll by hand, always check ato.gov.au for the current tables before you run a pay.
There is a link to the BAS and to Single Touch Payroll. The amounts you withhold are reported on your BAS at the W1 and W2 labels if you are a withholder, or reported through your STP submissions, and the money is then paid to the ATO by the due date. Withholding too little can leave the business liable for the shortfall, while withholding the right amount but not paying it over can lead to penalties and interest.
A common misunderstanding is that the table is a tax on the employer. It is not. GST is also unrelated to withholding: GST is charged on supplies, whereas PAYG withholding is taken from payments of wages and certain other amounts. A second misunderstanding is that a table amount is final tax. It is only a prepayment, and the true tax is worked out after the end of the financial year.
This is general information only, so confirm which schedule applies to your situation with the ATO or a registered tax professional before relying on it.
Worked example
Mei employs a part-time barista paid fortnightly, with a gross pay of $1,800 for the fortnight. The barista has claimed the tax-free threshold and has no study loan. Mei opens the ATO tax withheld calculator, selects fortnightly pay, resident, tax-free threshold claimed, and enters $1,800. The calculator shows the exact amount to withhold, which Mei deducts from the $1,800 before paying the balance. Mei then reports the amount through STP and pays it to the ATO with the BAS.
Practical tips
- Always use the current schedule from the ATO, because tables are updated and an old copy can cause under-withholding. If your payroll software is set up correctly it updates automatically.
- Check that each employee has a valid TFN declaration on file, because the table you use depends on the answers they gave about the tax-free threshold and study loans.
- If an employee expects their income to be unusual, they can apply for a withholding variation rather than waiting for a refund or a bill after year end.