Understanding PAYG Withholding in Australia
How employers estimate and remit your income tax from every paycheck under the ATO PAYG system — and why withholding is not your final tax.
Key Takeaways (FY 2026–27)
- PAYG withholding is an advance estimate of your annual tax, collected from every pay run and remitted to the ATO by your employer.
- Each pay run is annualised independently — an unusually large paycheck withholds as if you earned that amount all year.
- Claiming the $18,200 tax-free threshold from a second employer raises withholding; your annual assessment still applies it once.
What PAYG Withholding Actually Is
Pay As You Go (PAYG) withholding is the mechanism where your employer estimates your annual income tax, Medicare levy and HELP/HECS repayment, deducts a share from every paycheck, and remits it to the ATO on your behalf. You never see that money — it appears on your payslip as "tax withheld" or "PAYG".
Withholding is computed per pay run under ATO Schedule 1: the system annualises your gross for that period (a weekly paycheck × 52, fortnightly × 26, monthly × 12), applies the tax scale, then divides the annual estimate back down and rounds to whole dollars.
A $95,000 Salary Through the PAYG Lens
| Pay Run | Gross | Income Tax Withheld | + Medicare (2%) | Total Withheld | Net Deposit |
|---|---|---|---|---|---|
| Weekly | $1,826.92 | $365.77 | $36.54 | $402.31 | $1,424.62 |
| Fortnightly | $3,653.85 | $731.54 | $73.08 | $804.62 | $2,849.23 |
| Monthly | $7,916.67 | $1,585.00 | $158.33 | $1,743.33 | $6,173.33 |
Check your own figures in the PAYG Withholding Calculator — including the "no tax-free threshold" scale for second jobs.
Why Payslip Withholding ≠ Final Tax
Three reasons your withheld total rarely equals your assessed tax:
- Rounding: Schedule 1 works in whole dollars per run, so 26 runs can drift a few dollars from annual tax ÷ 26.
- Irregular pay: a bonus or back-pay run is annualised as if you earned it all year, over-withholding temporarily.
- Other income & deductions: investments, side income and deductible expenses exist only on your return — withholding only sees the paycheck.
Over-withholding comes back as a refund after you lodge; under-withholding becomes a bill. Estimate the full-year picture with the Take-Home Pay Calculator and read Gross Pay vs Take-Home Pay for the deduction chain.
Official Statutory Sources
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