What Is PAYG Withholding Tax?

PAYG (Pay As You Go) withholding is Australia's system for collecting income tax throughout the year. When you receive your salary, your employer calculates how much tax you owe based on ATO tax tables and withholds that amount from each pay. The withheld amount is sent to the ATO on your behalf.

At the end of the financial year, you lodge a tax return. If too much was withheld, you get a refund. If too little was withheld, you pay the difference. The system is designed to prevent you from facing a large tax bill at tax time.

For FY 2025-26, employers use updated tax tables that reflect the Stage 3 tax cuts and the new 16% rate for the $18,201–$45,000 bracket.

FY 2025-26 PAYG Withholding Tax Rates

The amount your employer withholds depends on your income, whether you claim the tax-free threshold, and any additional factors such as HELP debt repayments or Medicare Levy Surcharge. Here are the standard withholding rates based on the Stage 3 tax cuts.

These figures include the Medicare levy (2%) and assume you are claiming the tax-free threshold with a valid TFN. If you have a HELP debt, additional amounts will be withheld. Check our income tax calculator for personalised withholding estimates.

TFN Withholding: What Happens If You Do Not Provide Your TFN

If you start a new job and do not provide your Tax File Number (TFN) within 14 days, your employer must withhold tax at the highest marginal rate (47%) plus the Medicare levy (2%), totalling 49%. This applies to the first $18,200 as well — meaning you lose the tax-free threshold entirely.

The top rate of 47% applies no matter how much you earn. Even a part-time worker earning $30,000 would have 49% of their pay withheld if they have not provided a TFN. This often results in a large refund when you lodge your tax return, but it means significantly less take-home pay throughout the year.

To avoid this, provide your TFN to your employer as soon as you start, using the ATO's TFN declaration form (NAT 3092). You can also use the ATO online service via myGov to pre-fill your TFN declaration digitally.

Medicare Levy Withholding

The Medicare levy of 2% is included in the standard PAYG withholding amounts. Your employer automatically calculates and withholds this component based on your estimated income.

If your income is below the Medicare levy threshold ($27,222 for FY 2025-26), you may not need to pay the levy. Between $27,222 and $34,027, the levy gradually phases in (shade-in). Your employer will withhold the levy, and you will get any excess refunded when you lodge your tax return.

The Medicare Levy Surcharge (MLS) applies if you earn above $101,001 as a single and do not have an appropriate level of private hospital cover. This is not included in standard PAYG withholding — you generally pay it through your tax return or via a reduction in your private health insurance rebate.

HELP/HECS Debt Repayment Withholding

If you have a HELP (Higher Education Loan Program) debt and your income exceeds the repayment threshold, additional amounts must be withheld from your pay. For FY 2025-26, the repayment threshold is $67,000.

Here is how the new marginal repayment rates work under the FY 2025-26 rules:

For example, if your income is $80,000 and you have a HELP debt, your employer withholds an additional ($80,000 - $67,000) × 15c = $1,950 per year, or about $37.50 per week. Use our HECS-HELP repayment calculator for exact figures.

Employer Obligations for PAYG Withholding

Employers have several legal obligations under the PAYG withholding system. First, you must register for PAYG withholding with the ATO before you pay any employee wages. This is done through the Business Portal or via your registered tax agent.

Second, you need to withhold the correct amount from each pay using the ATO's published tax tables. The tables are updated whenever tax rates change, such as the Stage 3 tax cuts in July 2024 and the 16% rate adjustment in July 2025.

Third, you must report and pay withheld amounts to the ATO through Single Touch Payroll (STP) each time you run payroll. STP sends the data directly to the ATO, including year-to-date amounts for each employee.

Fourth, you must provide each employee with a payment summary or income statement at the end of the financial year. With STP, this is automatically available through myGov — employees no longer need a physical group certificate.

Salary Sacrifice and PAYG Withholding

Salary sacrifice arrangements affect how much PAYG is withheld. When you salary sacrifice into super, your employer deducts the sacrificed amount from your gross pay before calculating tax withholding. This reduces the amount of PAYG tax withheld each pay period.

However, salary sacrifice does not reduce the income used for HELP/HECS repayment calculations or the Medicare Levy Surcharge threshold. For example, if your gross salary is $100,000 and you salary sacrifice $10,000 into super, your PAYG is calculated on $90,000, but HELP repayment is still based on $100,000.

For more details, check our salary sacrifice calculator to see how it affects your PAYG withholding and take-home pay.

How to Check Your PAYG Withholding Is Correct

You can verify whether your employer is withholding the correct amount by comparing your payslip against the ATO tax tables. Log into myGov and link to the ATO to see your year-to-date withholding amounts.

If too much is being withheld, you can complete a Withholding Declaration (NAT 3093) to adjust, for example, if you are claiming the tax-free threshold for the first time. If too little is being withheld, you may need to request your employer to increase withholding to avoid a tax bill at year-end.

Our take-home pay calculator shows you the expected PAYG withholding for your salary. Compare this against your payslip to check if the amounts match.

Frequently Asked Questions

Can I ask my employer to withhold extra tax?

Yes. If you have investment income, a second job, or expect to owe tax at year-end, you can request your employer to withhold additional amounts. Complete a PAYG withholding variation application (NAT 2036) through the ATO to formalise this.

What if my employer does not withhold enough tax?

You are still responsible for paying the correct amount of tax. If your employer withholds too little, you will need to pay the shortfall when you lodge your tax return. The ATO may also charge the general interest charge (GIC) on late payments.

Do I pay PAYG withholding on casual and part-time work?

Yes. PAYG withholding applies to all employment income, regardless of whether you are casual, part-time, or full-time. Your employer must withhold tax from every pay, even for a single shift.

Is withholding tax the same as income tax?

Not exactly. Withholding tax is a prepayment of your annual income tax. It is calculated on each pay period, while your actual income tax is determined when you lodge your annual tax return. If your circumstances change during the year, your withholding may not exactly match your final tax liability.

What happens to withholding tax if I work two jobs?

You should claim the tax-free threshold from only one employer (usually your highest-paying job). Your second employer must withhold at higher rates (no tax-free threshold). This helps ensure you do not end up with a large tax bill at year-end. If both employers apply the tax-free threshold, you may owe significant tax when you lodge your return.