Key takeaways
- Withholding is prepaid income tax, not a separate tax. Every dollar withheld is credited against your assessment when you lodge.
- A $70,000 earner has about $12,920 withheld across 2026-27, an effective rate of 18.5% including Medicare levy.
- The amount is set by ATO withholding schedules plus your answers on the TFN declaration: residency, tax-free threshold, HELP debt. No TFN provided means top-rate withholding.
- Employers must register before the first payment that requires withholding, report every pay event through Single Touch Payroll, and remit on a cycle set by size.
- Cycles for 2026-27: withhold $25,000 or less a year, pay quarterly; $25,001 to $1 million, monthly; over $1 million, electronically within 6 to 8 days of each pay run.
- Refunds and tax bills are just the reconciliation between what was withheld and what the assessment says you actually owe.
Tax withheld at 5 salary levels
The fast answer first. Annualised withholding for a resident claiming the tax-free threshold, no HELP debt, under 2026-27 rates including Medicare levy.
| Annual salary | Withheld per year | Per fortnight | Fortnightly take-home | Effective rate |
|---|---|---|---|---|
| $45,000 | $4,595 | $177 | $1,554 | 10.2% |
| $60,000 | $9,620 | $370 | $1,938 | 16.0% |
| $75,000 | $14,520 | $558 | $2,326 | 19.4% |
| $90,000 | $19,320 | $743 | $2,718 | 21.5% |
| $120,000 | $28,920 | $1,112 | $3,503 | 24.1% |
Figures are annual 2026-27 tax spread evenly across 26 pays. Your payslip uses the ATO per-pay schedule, which rounds to whole dollars, so expect small differences pay to pay.
Calculate your exact withholding
For your own salary, pay cycle and HELP debt, the PAYG withholding calculator shows the withheld amount per week, fortnight or month and splits out income tax, Medicare levy and study loan repayments.
What "tax withheld" means on a payslip
The line labelled tax, PAYG or PAYGW on a payslip is money your employer deducted before paying you and forwarded to the ATO against your name. You never lose title to it in any final sense: it sits as a credit until your tax return works out the real bill. People searching "what is withholding tax" sometimes mean the international kind (tax on payments to non-residents), but on an Australian payslip, withholding means this everyday employee version.
Withholding applies to salary and wages, directors' fees, some contractor arrangements under voluntary agreements, and payments where a supplier fails to quote an ABN. It does not apply to sole trader invoices or rental income, which is what the instalments side of PAYG exists for. The split between the two systems is laid out in withholding vs instalments.
What withholding covers, and what it never touches
Withholding applies to
- Salary, wages, overtime, allowances and leave loading
- Bonuses, commissions and back pay (under their own schedule)
- Directors' fees and payments to office holders
- Contractors who opt in under a voluntary agreement
- Payments to suppliers who fail to quote an ABN
- Termination payments and unused leave paid out
Never withheld from
- Sole trader and partnership invoices (instalments territory)
- Rent from investment properties
- Interest, dividends and trust distributions to residents who quoted a TFN
- Reimbursements of genuine business expenses
- The 12% super guarantee, which is paid on top of gross, not out of it
What sets the amount withheld
Employers do not choose the figure. They apply ATO withholding schedules to your gross pay, adjusted by what you declared when you started:
- Residency status. Foreign residents are withheld from the first dollar at non-resident rates.
- Whether you claim the tax-free threshold. Claiming it (normal for your main job) means the first $18,200 of annualised pay attracts no withholding. Not claiming it, standard for a second job, means 15% from the first dollar in 2026-27. The decision rules are in the tax-free threshold guide.
- HELP or other study loan debt. Declaring one adds a repayment component once pay crosses the 2026-27 threshold of $69,528.
- Medicare levy status. Exemptions and reductions flow through to reduced withholding.
- No TFN. If you do not quote a TFN or claim an exemption within 28 days, the employer must withhold at the top rate of tax. This is the most expensive paperwork failure in the system.
You set these answers on the TFN declaration when you start, and change them later with a withholding declaration, which overrides the earlier form from the next pay after you hand it in.
Withholding vs your final tax
The schedules aim to withhold roughly the right amount for someone whose pay is the same every period all year with no deductions. Real years are messier: deductible expenses, job changes, unpaid leave, bonuses. The gap between the schedule's assumption and your actual year is exactly your refund or bill. A big refund means the assumption over-collected; a bill means something (usually a second job or untaxed side income) escaped the schedules entirely.
The bracket-by-bracket mechanics, the deliberate rounding and the annualisation logic are worked through in how PAYG is calculated. Your running total of wages and withholding for the year lives in myGov; the income statement guide shows where to find it and what "tax ready" means.
Employer obligations, start to finish
Hiring your first employee puts you on the other side of the system. The obligations run in a fixed sequence:
- Register for PAYG withholding before the first payment. Registration must happen before you are first required to withhold, even if the amount withheld would be nil. Businesses with an ABN register through the Australian Business Register or Online services for business; a tax or BAS agent can do it for you. Employers without an ABN (household employers of a nanny or gardener, for instance) register a withholding-only account using form NAT 3377 or by phone.
- Collect declarations. Each new worker gives you a TFN declaration; later changes arrive as withholding declarations. These set which schedule column applies. Keep them on file, do not send them to the ATO.
- Withhold using the current tables. All 15 withholding schedules and 12 tax tables were updated from 1 July 2026 for the 15% rate cut, so software and manual calculations must be on the 2026-27 versions. The per-pay amounts are published in the 2026-27 tax tables.
- Report every pay event through Single Touch Payroll. STP sends wages, withholding and super to the ATO each payday from your payroll software, then a finalisation declaration at year end turns the data into employees' income statements.
- Remit the withheld money on your cycle (next section), through activity statements for small and medium withholders.
Withholding cycles: when the money is due to the ATO
How often you pay depends on how much you withheld in previous years. The ATO assigns the status; you do not pick it.
| Withholder status | Annual withholding | Pay and report |
|---|---|---|
| Small | $25,000 or less | Quarterly, on the activity statement |
| Medium | $25,001 – $1 million | Monthly, on the activity statement |
| Large | Over $1 million | Electronically, within 6 to 8 days of each withholding event |
A rough sense of scale: one full-time employee on $70,000 generates about $12,920 of withholding a year, so a business stays a small withholder with two or three modest salaries, and most employers of ten or more staff sit in the medium band paying monthly.
The status is not permanent. Cross a boundary and your cycle changes with it; the ATO's "changing a withholding cycle" guidance, linked from the paying and reporting page cited below, covers how the moves work.
Amounts withheld belong to the ATO from the moment of the pay run. Employers who use withheld tax as cash flow risk director penalty notices, which make company directors personally liable for the unpaid amounts.
5 withholding mistakes to avoid
- Claiming the tax-free threshold with two employers at once
Both jobs withhold as if the first $18,200 were tax free, the threshold only exists once, and the shortfall lands as a bill at assessment. Claim it with your main employer only.
- Not declaring a HELP debt
No withholding component is added, but the repayment is still calculated at assessment. On a salary over the $69,528 threshold (2026-27) that is a four-figure surprise.
- Hiring before registering as a withholder
Registration must precede the first payment that requires withholding. Backdating is possible but messy, and unregistered withholding can cost the employer deductions for the wages themselves.
- Paying contractors without checking the ABN
A supplier who does not quote an ABN must generally have tax withheld from the payment at the top rate. Skipping the check moves the liability onto the payer.
- Missing the STP finalisation in July
Until the employer finalises, employees' income statements show as not tax ready and lodging from them risks amended returns later.
Frequently asked questions
What is tax withheld?
What is withholding tax in Australia?
Is PAYG withholding the same as income tax?
Why was no tax withheld from my pay?
What rate is tax withheld at?
Do sole traders withhold tax from themselves?
How do I check how much tax was withheld this year?
Can I ask my employer to withhold extra?
Sources
- ATO: PAYG withholding
- ATO: Paying and reporting PAYG withholding amounts (withholder cycles)
- ATO: Registering for PAYG withholding
- ATO: Withholding declaration (NAT 3093)
- ATO: Tax tables, updated for 1 July 2026
- ATO: Tax-free threshold with multiple jobs (withholding start points)
Related resources
PAYG Withholding Calculator
Your per-pay withholding under 2026-27 rates
Open →Tax-Free Threshold
Claim it or not: the rules and the dollar difference
Open →What Is PAYG?
The two-sided system this page is half of
Open →
Narelle Hartigan is a CPA-qualified tax accountant with over a decade of experience in Australian personal taxation and payroll. She founded PAYG Calculator Australia to make tax withholding easy for every Australian worker to understand.