What is PAYG withholding?
PAYG withholding is the system where employers deduct income tax from employee wages and send it directly to the ATO on behalf of the employee.
Pay As You Go (PAYG) withholding is the system under which your employer deducts income tax from your pay before you receive it, then remits that amount to the Australian Taxation Office (ATO). The amount withheld depends on how much you earn, whether you've claimed the tax-free threshold, and any other factors on your TFN declaration.
PAYG withholding applies to wages, salary, commissions, bonuses, allowances, and most other payments for work. Your employer reports withheld amounts through Single Touch Payroll (STP) and provides a payment summary (now replaced by the STP income statement) for your tax return. If too much or too little tax was withheld, the balance is adjusted when you lodge your return.
Key facts
- •Employers must register for PAYG withholding with the ATO
- •The amount withheld is based on ATO tax tables, your income level, and your TFN declaration
- •The tax-free threshold is $18,200 — claiming it reduces your withholding
- •Reported through Single Touch Payroll (STP) each pay cycle
- •PAYG instalments (different from withholding) apply to business and investment income
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Take Home Pay CalculatorFrequently asked questions
What happens if my employer doesn't withhold enough tax?
You may end up with a tax bill when you lodge your return. This can happen if you have multiple jobs and claim the tax-free threshold on more than one, or if you receive allowances that aren't fully taxed.
Can I ask my employer to withhold extra tax?
Yes. You can request additional withholding by completing a withholding declaration (NAT 3093) and giving it to your employer. This can help avoid a tax bill at the end of the financial year.
General information and estimates only — not legal, financial, or tax advice. Always verify with the Fair Work Ombudsman (13 13 94) or a qualified professional.