PAYG withholding is calculated by your employer for each pay, using the Australian Taxation Office tax tables and statement of formulas for that pay period. Your employer takes an amount out of your gross pay, sends it to the ATO, and you receive the rest as net pay. The amount withheld is not your final tax bill. It is an advance collection of the income tax, and in effect the Medicare levy, that you are likely to owe for the year. At tax return time, total withholding is credited against tax on your actual annual income.
To check a single pay, use our PAYG calculator. For the annual picture, use our income tax calculator.
What PAYG withholding is
PAYG stands for pay as you go. Tax is collected gradually as you earn, rather than in one large bill at the end of the financial year. Each pay run, your employer works out how much to withhold, reports it, and pays it to the ATO on your behalf.
Your employer does not know your full year in advance. They do not know if you will work the whole year, change jobs, receive a bonus, or earn other income. The system handles that by estimating your position from each pay, then letting the tax return settle the difference. For most employees, withholding is the only tax deduction from gross pay. The Medicare levy is included in effect, because the tax tables take it into account rather than showing it as a separate deduction for most people.
How employers calculate it
Employers must use the ATO tax tables for the relevant pay period, or payroll software built on the ATO statement of formulas. The statement of formulas is the ATO method software uses to calculate withholding mathematically, instead of looking up a table for weekly, fortnightly or monthly pays.
In broad terms, the employer:
- Starts with your gross earnings for that pay period.
- Allows for whether you claimed the tax-free threshold from that employer.
- Applies the table or formula matching your pay period and circumstances.
- Withholds the result and pays you the balance.
The tables are built from the resident rates for the financial year. The resident thresholds are $18,200, $45,000, $135,000 and $190,000, with the Medicare levy at 2 percent for most people. The tables spread those annual rates across each pay period, so weekly, fortnightly and monthly pays on the same salary should produce a similar total across the year.
The tax-free threshold
Australian residents can generally claim the tax-free threshold, meaning the first $18,200 of annual income is not taxed. Claiming it reduces withholding from each pay, because the tables spread that tax free slice across the year.
You usually claim it from only one employer at a time. Claiming it from two jobs at once can leave too little tax withheld and produce a bill at tax time. Not claiming it from a second job makes withholding from that job higher, because no tax free amount is allowed for.
You record your claim on the tax file number declaration you give a new employer. If your situation changes, tell your employer so it can be updated. Our calculator assumes the threshold is claimed, which suits most people checking their main job. For a second job where you have not claimed it, expect actual withholding to be higher than our estimate.
How our calculator differs from your employer’s method
Our calculator uses a simpler method than your employer must use, and that difference explains small gaps between an estimate and a payslip.
Our calculator annualises the pay you enter, applies the resident income tax rates and Medicare levy to that annual amount, then spreads the total evenly across the pays in the year.
Your employer must use the ATO tax tables and statement of formulas, which apply their own rounding and scale adjustments for the specific pay period. They can also reflect details our version 1 calculator does not include, such as study debt amounts.
Our result is therefore an estimated withholding, not a reproduction of the ATO table amount. A difference of a few dollars is normal. A large, repeated difference can point to a different threshold claim, a different pay period basis, or a one off amount such as a bonus or back pay.
| Step | Fortnightly example, 2025-26 |
|---|---|
| Gross pay entered | $3,000 per fortnight |
| Annualised gross pay | $78,000 |
| Income tax on $78,000 | $14,188 |
| Medicare levy at 2 percent | $1,560 |
| Total tax and levy for the year | $15,748 |
| Estimated withholding per fortnight | $605.69 |
| Estimated net pay per fortnight | $2,394.31 |
Why withholding changes
If pay is identical every period, withholding is usually steady. When pay varies, withholding varies with it. Overtime, allowances, commissions, bonuses, back pay and unpaid leave change the gross amount for a period, and the table responds to the amount actually paid.
A higher than usual pay can attract higher withholding in that run, even though your annual rate has not changed. If you work only part of a year, withholding during the months worked may exceed your final annual tax, because each pay was calculated as if that pattern continued. Extra withholding for a HELP or similar study debt, once income passes the repayment threshold, also changes the figure. Our calculator does not include study debt amounts.
Reconciliation at tax return time
When you lodge your return, the ATO calculates tax on your actual taxable income for the year, from 1 July to 30 June, and credits all withholding from the year against it. If more was withheld than your final tax, the difference is refunded. If less was withheld, you receive a bill. Neither outcome proves payroll made a mistake: withholding is an estimate, and the return is designed to correct it. Your end of year income statement summarises gross pay and withholding reported by your employer.
If your withholding looks wrong
Confirm gross pay first, including overtime, allowances and leave. Confirm your threshold claim and whether this is your only job. Check for a one off amount in that pay. Then compare with the PAYG calculator for the same period and year, allowing a small gap for the table method. If a large gap repeats every pay, ask payroll to confirm which table and threshold setting they are applying.
This guide is general information only and is not tax advice. For multiple jobs, study debts or other income, consider a registered tax agent.
Common questions
Is PAYG withholding a separate tax?
No. It is how income tax is collected during the year. Withholding is credited against tax in your return, and any difference is refunded or billed then.
Why is my payslip a few dollars different from a calculator estimate?
Employers must use ATO tax tables and the statement of formulas, with their own rounding and adjustments. Our calculator annualises pay and spreads annual tax evenly, so a small difference is normal.
Should I claim the tax-free threshold from every job?
Usually no. Most people claim it from one employer only, normally the highest paying one. Claiming it twice often leaves too little tax withheld for the year.
Does PAYG withholding include the Medicare levy?
In effect, yes for most employees. Withholding produced by the tax tables takes the levy into account, rather than showing it as a separate tax on most payslips.
Does it cover HELP debt repayments?
It can. If you have a HELP or similar debt and income passes the repayment threshold, your employer withholds extra. Our calculator does not include study debt amounts in this version.