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Learn MorePAYG Withholding in Australia:
The Complete 2026-27 Guide
PAYG withholding is one of the most important obligations for Australian employers and sole traders. This guide covers everything you need to know about calculating, registering, and lodging PAYG withholding for the 2026-27 financial year.
Written by Rob, founder of AusCalc
Australian small business owner. Checked against current ATO published rates. Updated July 2026. About AusCalc
What is PAYG Withholding?
PAYG (Pay As You Go) withholding is the system where Australian employers deduct tax from wages and other payments before paying their employees. This ensures that employees meet their end-of-year tax obligations gradually throughout the year rather than in one large lump sum.
This system applies broadly across the Australian workforce, covering:
- Full-time and part-time employees
- Casual workers
- Executive directors
- Some contractor payments (where no ABN is provided)
Once withheld, these amounts must be remitted to the ATO either monthly or quarterly, depending on the size of your business and the total amount withheld annually.
How to Calculate PAYG Withholding
Determining the correct amount to withhold is based on the ATO's official tax tables. The amount you withhold depends on your employee's gross earnings for the pay period. Whether that's weekly, fortnightly, or monthly.
Worked Example
Consider an employee earning $1,500 per week. Their annualized taxable income is approximately $78,000. Based on the 2026-27 tax scales (including the Medicare Levy), their weekly withholding amount would be approximately $297.69.
You must also consider individual factors such as their residency status, whether they're claiming the tax-free threshold, and any HECS-HELP debts or other study loans they may be repaying.
PAYG Withholding for Sole Traders
It's a common misconception that sole traders "withhold" tax from themselves. In reality, sole traders operate under the PAYG instalments system rather than "withholding."
While withholding is for employees, instalments are for business owners. After you lodge your first tax return showing business income, the ATO will typically place you into the instalment system. You'll then pay quarterly amounts towards your expected end-of-year tax liability.
If you want to estimate your own tax liability as a business owner, use our Sole Trader Tax Calculator which factors in business income, expenses, and the Medicare levy.
Withholding Variations: When the Standard Tables Get It Wrong
The ATO withholding tables assume your pay is steady all year. Real life is lumpier. If you work irregular hours, hold two jobs, or receive large one-off payments like bonuses and unused leave, the standard tables can withhold too much or too little.
The two-job trap is the most common. You can only claim the tax-free threshold with one employer. Claim it with both and each job withholds as if it were your only income, which almost guarantees a tax bill at the end of the year. The safer setting is to claim the threshold with your main employer and have the second job withhold at the no-threshold rate.
If your circumstances mean the standard rate is clearly wrong for you, the ATO allows a formal withholding variation (a PAYG withholding variation application). Investors with large negative gearing deductions commonly use this to reduce withholding during the year rather than waiting for a big refund. It runs for the financial year and needs to be renewed annually.
Employees with a HECS or HELP debt should also double check the extra withholding kicks in once income passes the repayment threshold. Our HECS calculator shows the repayment your annual income will actually trigger, and the HECS-HELP Repayment Guide breaks down the full threshold table.
Single Touch Payroll and Your Income Statement
If you employ staff, every pay run must be reported to the ATO through Single Touch Payroll (STP) compatible software at the time you pay, not at year end. Paper payment summaries are history. At the end of the financial year you finalise your STP data, which flips each employee's income statement in myGov to Tax ready.
For employees, this is why waiting until late July to lodge matters. Until your employer finalises STP, the income figures pre-filled in myTax are provisional and can change. Lodging against unfinalised data is one of the most common reasons returns need amending.
Small employers with fewer than 20 staff have access to simplified concessional reporting through their software, and micro employers can in limited cases report quarterly through a tax or BAS agent. Either way, the withholding you report through STP must match what you actually remit to the ATO through your activity statements.
When and How to Lodge PAYG
Reporting PAYG withholding occurs primarily through your Business Activity Statement (BAS) or Instalment Activity Statement (IAS).
- Monthly Lodgers: If your total annual withholding is over $25,000, you must report monthly.
- Quarterly Lodgers: Most small businesses withhold less than $25,000 annually and report quarterly on their BAS.
Under Single Touch Payroll (STP), you are also required to report salaries and tax withheld directly to the ATO every time you pay your staff, using STP-enabled software like Xero or Hnry.
2026-27 PAYG Tax Brackets
| Taxable Income | Tax Rate |
|---|---|
| $0 - $18,200 | 0% (Nil) |
| $18,201 - $45,000 | 15c for each $1 over $18,200 |
| $45,001 - $135,000 | $4,020 plus 30 cents for each $1 over $45,000 |
| $135,001 - $190,000 | $31,020 plus 37 cents for each $1 over $135,000 |
| $190,001+ | $51,370 plus 45 cents for each $1 over $190,000 |
Note: These rates do not include the 2% Medicare Levy which is also typically withheld as part of the PAYG system.
Related Calculators
Regulatory Notice:
Standard ATO estimates only; consult a professional before acting. For more details, see our Disclaimer.