What Is PAYG Withholding?
Australia's pay-as-you-go tax withholding system. Employers withhold income tax from employees' wages each pay period and remit it to the ATO on the employee's behalf.
Definition
PAYG (Pay As You Go) withholding is the ATO's system for collecting income tax progressively throughout the year. Employers use tax withheld tables (or ATO calculators) to deduct the correct amount of tax from each pay. The withheld amounts are credited against the employee's annual income tax liability when they lodge their tax return. If too much tax was withheld the ATO issues a refund; if too little a top-up payment is required. Employees complete a Tax File Number (TFN) declaration and Withholding Declaration to indicate their residency status, HECS-HELP debt, and tax offset claims. PAYG instalments is a separate system for businesses, investors, and individuals with investment income above ATO thresholds.
Example
On a $90,000 gross salary, PAYG withholding is approximately $19,717 per year in income tax plus $1,800 Medicare Levy = $21,517, or about $1,793 per month.