How PAYG Withholding Works

Pay as you go (PAYG) withholding is the mechanism that collects your income tax gradually across the year instead of as one bill in July. Each pay day your employer calculates an amount from the ATO's withholding tax tables, deducts it from your gross pay, and remits it to the ATO against your tax file number. It appears on your payslip as tax, PAYG or PAYG-W.

Withheld amounts are credits, not final tax. Whatever was collected across all your jobs is offset against your assessed tax when you lodge your return; the difference becomes your refund or your bill. Your employer never keeps any of it and has no discretion to charge you more or less than the tables say — the only lever that changes the amount is the information you've given them.

Payroll software looks up your gross earnings for the period in the withholding table that matches your pay cycle — weekly, fortnightly or monthly — and your settings. Those settings come from your answers on the TFN declaration: residency status, whether you claim the tax-free threshold, and whether you have a study loan.

The tables work by annualising each pay. A $3,077 fortnight is treated as roughly an $80,000 year, and the withholding approximates one twenty-sixth of the tax on that, including the 2% Medicare levy for residents. This is also why a one-off big pay is over-withheld: the table assumes you earn that much every fortnight. The published per-period amounts for 2026-27 are in our tax tables.

A lot. Here's the same $80,000 salary, paid fortnightly (gross $3,076.92), under three declaration settings. Figures are computed from the 2026-27 resident rates plus the 2% Medicare levy; the ATO's published tables round each pay period slightly, so a real payslip may differ by a few dollars.

Same job, same salary — and $826 a fortnight between the best and worst setting. The no-threshold extra comes back as a refund at tax time. The 47% no-TFN rate for residents is recoverable too once you lodge with a TFN, but there's no reason to lose that cash flow: provide your TFN within 28 days of starting and normal rates apply. Test your own numbers in the PAYG withholding calculator.

Because withholding is a per-pay estimate of an annual liability, several ordinary situations knock it off target:

• Bonuses and back pay — annualised as if repeated every pay, so they're typically over-withheld in the period they land
• Multiple jobs — each employer withholds knowing nothing about the other, and if both apply the tax-free threshold you'll be under-withheld
• Part-year work — start a job in January and each pay is withheld as if you'd earned at that rate since July, producing a refund
• Deductions and other income — work expenses cut your final tax below the estimate; untaxed interest, dividends or capital gains push it above

None of these mean anyone made an error. The reconciliation on your return exists precisely because the per-pay estimate can't see your whole year. Compare your expected annual tax from the income tax calculator against your payslips to spot a gap early.

No, and the distinction matters when you read a payslip. Superannuation guarantee contributions — 12% of ordinary time earnings in 2026-27 — are paid by your employer on top of your gross salary, not deducted from it. A payslip showing $3,076.92 gross, $620.00 PAYG and $369.23 super means the super came from your employer's pocket, not yours.

The exceptions are salary-sacrificed super, which does come out of your gross pay (before tax, which is the point of it), and any voluntary after-tax contributions you've asked payroll to deduct. If your take-home pay looks low, check whether a sacrifice arrangement is running before assuming the tax withholding is wrong.

Three steps. First, confirm your settings: your payslip or payroll portal should show the tax-free threshold claimed at your main job only, your residency status, and a study loan flag only if you have one. Second, look up your gross pay for one period in the 2026-27 tax tables or the PAYG withholding calculator and compare against the tax line on that payslip — they should match within a dollar or two.

Third, if they don't match, the usual culprits are a stale TFN declaration from a previous arrangement, a study loan flag left on after the debt was cleared, or an upward variation you requested and forgot. Fix any of them by lodging a new withholding declaration with your employer; the corrected amount applies from the next pay run.