Payroll TaxATO 2025–26Schedule 1

PAYG Withholding on Payslip Australia: Complete 2025–26 Guide

Rates · examples · calculator · tax table · Medicare levy · under/over withholding · employer obligations · ATO Schedule 1

DP

Written by David Pham

Payroll Compliance & Tax Specialist · officedraft

LB

Reviewed by Lisa Berwick

Senior Payroll Advisor · 11 years ATO withholding compliance

Published: Jan 2026

Updated: 1 June 2026

2025–26 ATO ratesFree PAYG calculatorTax table all salariesWeekly / fortnightly / monthlyUnder/over checkerWorked examples

PAYG withholding on your payslip is the amount your employer deducts from your gross pay each period and forwards to the Australian Taxation Office (ATO) on your behalf. In Australia, PAYG withholding is required under the Taxation Administration Act 1953 and sits at the core of how income tax is collected from employees.

Whether you're an employee checking your payslip, a payroll manager confirming your calculations are correct, or an employer setting up a new hire, this guide covers everything you need to know about PAYG withholding on Australian payslips — including the 2025–26 rates, worked examples for weekly, fortnightly, and monthly pay, a free calculator, and the common mistakes that lead to underpayment or refund surprises at tax time.

19–45%

Tax rate range

Based on income bracket

$18,200

Tax-free threshold

2025–26 financial year

2%

Medicare levy

Separate from PAYG tax

Weekly

ATO reporting (STP)

Every pay cycle to ATO

What Is PAYG Withholding?

PAYG stands for Pay As You Go. The PAYG withholding system requires employers to collect income tax from employee wages at the time of payment, rather than waiting for employees to pay it themselves annually. This system was introduced in Australia in 2000 to simplify tax collection and reduce the risk of employees accumulating large tax debts.

Under the system, your employer uses the ATO's published withholding schedules (Tax Tables) — specifically Schedule 1 — Statement of formulas for calculating amounts to be withheld — to determine exactly how much to deduct from each pay. The amount withheld is then credited against your total income tax liability when you lodge your annual tax return.

PAYG withholding is not a separate tax. It is simply your income tax collected in advance, spread across each pay period of the year. Your actual tax liability is calculated once per year when you lodge your return — PAYG withholding is reconciled against that liability, producing either a refund or a tax bill.

Why PAYG Appears on Your Payslip

Under the Fair Work Regulations 2009, employers must include any deductions from gross pay on every payslip. Since PAYG withholding reduces your gross pay to produce your net pay, it must appear as a listed deduction. The payslip must show:

Required PAYG fields on an Australian payslip
Gross payTotal earnings before any deductions, including ordinary pay, overtime, allowances
PAYG tax withheldThe income tax amount withheld this period — shown as a deduction
Net payGross pay minus all deductions including PAYG — the amount deposited to your bank
YTD PAYG withheldCumulative PAYG withheld from the start of the financial year to this pay period
Employer obligation: Employers who fail to withhold or remit PAYG to the ATO face penalties under the Taxation Administration Act 1953. If PAYG is missing from your payslip and you're a permanent employee, contact your payroll department immediately.

PAYG Withholding Rates for 2025–26

PAYG withholding rates are not a flat percentage — they're calculated using Australia's progressive income tax brackets. The more you earn, the higher the marginal rate applied to the top portion of your income. The 2025–26 tax rates (effective 1 July 2025) are:

Taxable IncomeTax RateTax on This Bracket
$0 – $18,2000%Nil
$18,201 – $45,00019c per $1 over $18,200Up to $5,092
$45,001 – $120,00032.5c per $1 over $45,000Up to $24,375
$120,001 – $180,00037c per $1 over $120,000Up to $22,200
$180,001+45c per $1 over $180,000No cap

Source: ATO — Tax rates for Australian residents 2024–25. Rates unchanged from 2024–25 following the Stage 3 tax cuts which took effect 1 July 2024.

Low Income Tax Offset (LITO): Employees earning under $66,667 per year also receive the Low Income Tax Offset of up to $700, which reduces the effective amount of PAYG withheld. This is automatically factored into the ATO's withholding schedules — your employer doesn't need to calculate it separately.

How PAYG Is Calculated

Employers calculate PAYG withholding using the ATO's Schedule 1 formula. The method converts your per-period pay into an annualised income, calculates the annual tax, then divides it back to your pay frequency. Here is the step-by-step process:

1

Annualise the gross pay

Multiply the per-period gross by the number of periods per year: weekly × 52, fortnightly × 26, monthly × 12. This gives an annualised income figure.

📌 Fortnightly gross of $3,077 × 26 = $80,000 annualised
2

Apply the tax rate scale

Apply the relevant tax scale (Scale 2 for tax-free threshold claimed, Scale 1 for not claimed) to the annualised income. Calculate the annual tax using the progressive brackets.

📌 $80,000 annual → $5,092 + ($80,000 – $45,000) × 32.5% = $16,467 annual tax
3

Subtract the Low Income Tax Offset

Apply the LITO reduction if applicable. For incomes between $37,500 and $45,000, LITO phases out at 5 cents per dollar; between $45,000 and $66,667, at 1.5 cents per dollar.

📌 $80,000 is above the LITO threshold → $0 LITO. Annual tax remains $16,467
4

Add the Medicare levy

Add 2% of annualised income for the Medicare levy. For low-income earners below the Medicare levy low-income threshold, a reduced or nil levy applies.

📌 $80,000 × 2% = $1,600 Medicare levy. Total annual: $18,067
5

Divide by pay periods

Divide the total annual withholding (tax + Medicare) by the number of pay periods to get the per-period withholding. Round to the nearest dollar.

📌 $18,067 ÷ 26 fortnights = $695 per fortnight PAYG (inc. Medicare)
Payroll software handles this automatically. Modern payroll systems like Xero, MYOB, and KeyPay apply the ATO's Schedule 1 formulas in real time. However, knowing the underlying calculation lets you verify your payslip and identify errors — particularly when you change jobs, change pay frequency, or start a second job.

PAYG vs Medicare Levy

Many employees see both "PAYG withholding" and "Medicare levy" on their payslip and wonder whether they're the same thing. They are not — but they're closely related:

🏛️PAYG Withholding
  • →Your income tax, collected in advance
  • →Rate: 0% to 45% depending on annual income
  • →Progressive — rate increases with income
  • →Reduced by Low Income Tax Offset (LITO)
  • →Reconciled at tax return — refund or bill
  • →Credited to your ATO tax account
🏥Medicare Levy
  • →Funds Australia's public health system
  • →Rate: 2% of taxable income (flat)
  • →Exempt if income < $26,000 (2025–26)
  • →Reduced rate between $26,000–$32,500
  • →Also reconciled at tax return time
  • →Medicare Levy Surcharge applies if no private health

On many payslips, Medicare levy is grouped within the PAYG withholding line rather than shown separately. Both amounts are forwarded to the ATO and both appear on your ATO income statement under "tax withheld." For more detail, see our complete Medicare levy guide.

PAYG on Weekly, Fortnightly and Monthly Payslips

The total annual PAYG withheld should be the same regardless of your pay frequency — what changes is how it's spread across pay periods. Here are worked examples at a $80,000 annual salary, claiming the tax-free threshold:

Pay frequencyGross / periodPAYG withheldNet pay

weekly

52 pays/year

$1,538$317$1,190

fortnightly

26 pays/year

$3,077$634$2,381

monthly

12 pays/year

$6,667$1,374$5,160
Why the monthly figure seems larger: Monthly PAYG appears to be a bigger deduction because you only receive 12 payments instead of 52 (weekly) or 26 (fortnightly). The total annual PAYG is equivalent across all frequencies — only the per-period amount changes.

PAYG Withholding Calculator 2025–26

Enter your annual salary and pay frequency to instantly calculate your estimated PAYG withholding, Medicare levy, and net take-home pay for 2025–26:

🧮

PAYG Withholding Calculator 2025–26

Based on ATO Schedule 1 withholding tables · Updated for 2025–26 tax year

$

PAYG Withholding Tax Table 2025–26

Compare PAYG withholding amounts across common salary levels. Switch between pay frequencies using the selector — all figures assume tax-free threshold claimed:

📊 PAYG Tax Table 2025–26

With tax-free threshold · ATO Schedule 1

Annual SalaryGross / PeriodPAYG WithheldMedicare LevyNet Take-HomeTax Rate
$40,000$1,538$138$31$1,3699%
$55,000$2,115$314$42$1,75914.8%
$70,000$2,692$508$54$2,13018.9%
$80,000$3,077$634$62$2,38120.6%
$100,000$3,846$884$77$2,88523%
$120,000$4,615$1,134$92$3,38924.6%
$150,000$5,769$1,560$115$4,09427%
$180,000$6,923$1,988$138$4,79728.7%
$200,000$7,692$2,334$154$5,20430.3%

2025–26 ATO Schedule 1 estimates. Tax-free threshold claimed. Excludes HECS/HELP, salary sacrifice, offsets other than LITO, additional withholding variations.

Under-Withholding vs Over-Withholding

If PAYG isn't calculated correctly, you'll either end up with a surprise tax bill or an unexpectedly large refund. Understanding why this happens helps you take action before tax time:

⬇️ Under-withholding (tax bill at tax time)

Common causes:

  • •Multiple jobs — each employer withholds as if it's your only income
  • •Not claimed tax-free threshold at a second employer
  • •Investment, rental, or freelance income on top of salary
  • •Salary increase mid-year not updated in payroll
  • •HECS/HELP debt not disclosed to employer

Fix: Request additional withholding from your employer via a new TFN Declaration, or pay PAYG instalments to the ATO for non-employment income.

⬆️ Over-withholding (refund at tax time)

Common causes:

  • •Claimed tax-free threshold at only one employer but salary is low
  • •Payroll not updated after a salary reduction
  • •Incorrect tax scale applied (Scale 1 instead of Scale 2)
  • •Additional withholding requested but no longer needed
  • •Employer applying default 47% withholding (no TFN on file)

Fix: Lodge a PAYG withholding variation (ATO Form NAT 5367) to reduce future withholding. Or simply wait — you'll receive a refund when you lodge your return.

Check Your PAYG Withholding

Enter your salary, the PAYG withheld from your payslips to date, and the number of weeks you've worked. We'll tell you if you're on track, over-withheld, or under-withheld:

⚖️ Under/Over Withholding Checker

Check if your employer is withholding the right amount of PAYG tax

$
$

PAYG Calculation Examples

These worked examples show exact PAYG calculations for common employment scenarios. All use 2025–26 ATO Schedule 1 withholding formulas:

Example 1: Full-time employee, $80,000 salary, fortnightly pay, tax-free threshold claimed

Annual salary$80,000
Fortnightly gross ($80,000 ÷ 26)$3,077
Annual tax (ATO Schedule 1, Scale 2)$16,467
Less: LITO (income > $66,667 → $0)$0
Annual tax after offsets$16,467
Fortnightly PAYG withheld ($16,467 ÷ 26)$634
Medicare levy ($80,000 × 2% ÷ 26)$62
Total deductions this fortnight$696
Net take-home pay$2,381

Example 2: Part-time employee, $45,000 salary, weekly pay, tax-free threshold claimed

Annual salary$45,000
Weekly gross ($45,000 ÷ 52)$865
Annual tax (ATO Schedule 1, Scale 2)$5,092
Less: LITO (income $45,000 → $325)−$325
Annual tax after LITO$4,767
Weekly PAYG withheld ($4,767 ÷ 52)$92
Medicare levy ($45,000 × 2% ÷ 52)$17
Total deductions this week$109
Net take-home pay$756

Example 3: Senior employee, $150,000 salary, monthly pay, no tax-free threshold (second job)

Annual salary$150,000
Monthly gross ($150,000 ÷ 12)$12,500
Annual tax (ATO Scale 1 — no TFT)$43,567
Less: LITO (income > $66,667 → $0)$0
Annual tax after offsets$43,567
Monthly PAYG withheld ($43,567 ÷ 12)$3,631
Medicare levy ($150,000 × 2% ÷ 12)$250
Total deductions this month$3,881
Net take-home pay$8,619

Need a compliant payslip?

Generate Australian Payslips with PAYG, Medicare & Super

All 14 Fair Work mandatory fields — employer ABN, YTD PAYG, Medicare levy, superannuation, gross/net pay. Free preview.

Generate Payslip Free →
✓ PAYG tax auto-calculated✓ Medicare levy included✓ Superannuation (SGC)✓ YTD balances✓ Fair Work compliant

Common PAYG Payslip Mistakes

These are the most frequent PAYG withholding errors found on Australian payslips — and what to do if you spot them:

🔢

Wrong tax scale applied

High impact

Using Scale 1 (no TFT) instead of Scale 2 (TFT claimed) results in significantly higher withholding. Check your TFN Declaration form on file with your employer to confirm which scale should apply.

👥

Tax-free threshold claimed at multiple employers

High impact

You can only claim the tax-free threshold from one employer. If you've claimed it at two jobs, you'll be under-withheld and face a tax bill at year end. Update your TFN Declaration at the second employer.

📊

Pay rate change not updated in payroll

Medium impact

If your salary increases or decreases mid-year but the payroll system uses your old rate for the withholding calculation, PAYG may be over or under-withheld. Check that your payslip reflects the correct gross pay.

🎓

HECS/HELP debt not reflected

Medium impact

If you have a HECS/HELP debt, you should have ticked "Yes" to the study loan question on your TFN Declaration. If not, your employer won't be withholding the HELP repayment component — you'll owe it at tax time.

💼

No TFN on file — 47% withholding rate

Very high impact

Employees who haven't provided their Tax File Number within 28 days of starting are withheld at the top marginal rate (47%). If you see excessive PAYG, check your TFN has been registered with your employer.

📅

YTD PAYG not updated on payslip

Low-medium impact

Your payslip must show cumulative YTD PAYG withheld. If this figure doesn't increase each pay period or appears to reset, there may be a payroll system configuration error.

Frequently Asked Questions — PAYG Withholding Australia

Why is PAYG withheld from my payslip?
PAYG (Pay As You Go) withholding is the Australian tax collection system. Instead of paying your entire annual income tax bill in one lump sum at the end of the financial year, your employer deducts estimated income tax from every pay run and forwards it directly to the ATO. This spreads your tax obligation across the year. When you lodge your tax return, the ATO reconciles the total withheld against your actual tax liability — and either refunds any overpayment or requests payment for any shortfall.
How much PAYG should be withheld from my pay?
The correct PAYG withholding amount depends on your annual salary, pay frequency, and whether you claim the tax-free threshold. For a $80,000 annual salary paid fortnightly claiming the tax-free threshold, PAYG withholding is approximately $1,058 per fortnight in 2025–26. Use the PAYG withholding calculator above to get an estimate for your specific situation. Your employer must use the ATO's published withholding schedules (Schedule 1) to calculate the correct amount.
What is the difference between PAYG withholding and the Medicare levy on a payslip?
PAYG withholding is income tax withheld by your employer and credited against your annual income tax liability. The Medicare levy is a separate 2% charge on your taxable income that funds Australia's public health system (Medicare). Some employers include the Medicare levy as part of the PAYG withholding line on your payslip; others show it separately. Either way, both are forwarded to the ATO and both appear on your income statement at tax time. If your income is below $26,000 per year, you may be exempt from the Medicare levy.
What is the tax-free threshold and how does it affect PAYG on my payslip?
The tax-free threshold is $18,200 per financial year — the first $18,200 of income you earn is tax-free. If you have claimed the tax-free threshold on your Tax File Number (TFN) Declaration with your employer, your PAYG withholding will be significantly lower than if you haven't claimed it. For example, on a $60,000 salary, claiming the threshold reduces annual PAYG from approximately $11,400 to $7,797. Only claim the threshold from one employer — your main job. If you have multiple jobs, only claim it from the employer who pays you the most.
Can I ask my employer to withhold more PAYG from my payslip?
Yes. If you want to avoid a tax bill at the end of the year — for example, if you have investment income, rental income, or work multiple jobs — you can ask your employer to withhold additional PAYG. Submit a new Tax File Number Declaration or a PAYG withholding variation form to your employer specifying the extra amount per pay period. This is entirely legal and your employer is obligated to action your request. The ATO also has an online variation form (NAT 5367) for formal withholding adjustments.
Why is there a difference between the PAYG on my payslip and my expected tax bill?
Several factors can cause a mismatch: salary changes mid-year, incorrect tax-free threshold status, multiple employers (where each withholds as if it's your only income), untaxed income (freelance, investments, rental), salary sacrifice arrangements changing your taxable income, or claiming the Low Income Tax Offset (LITO) incorrectly. The ATO reconciles everything when you lodge your return. If you are consistently overpaying, you can lodge a PAYG withholding variation; if you are underpaying, consider paying PAYG instalments or requesting additional withholding.
Does PAYG withholding appear on my ATO income statement in myGov?
Yes. Since Single Touch Payroll (STP) became mandatory in 2019–20, every PAYG amount withheld from your pay is reported to the ATO by your employer in real time. You can view the cumulative total at any time in myGov → ATO → Employment → Income Statements. At the end of the financial year, your income statement is "tax ready" (marked with a finalisation status) — meaning you can use those figures directly in your tax return without waiting for a group certificate or payment summary.
What should I do if PAYG is not appearing on my payslip?
If no PAYG is being withheld and you are a PAYG employee (not an ABN contractor), this may indicate a payroll error or TFN issue. First, check whether your Tax File Number has been provided to your employer — without a TFN, employers must withhold at the top tax rate (47%). If you provided your TFN and PAYG is still not being withheld, contact your payroll department in writing. Employees with salaries above the tax-free threshold must have PAYG withheld. If your employer refuses to correct this, you can report the issue to the ATO and the Fair Work Ombudsman.

Related Payroll Guides & Tools

Australian Payslip GeneratorMost popular

Create compliant payslips with PAYG, super, and all 14 Fair Work fields

Payslip Deductions Australia

Every deduction explained: PAYG, Medicare, super, salary sacrifice

Medicare Levy on Payslip

How the 2% Medicare levy is calculated and shown on payslips

Tax on Payslip Australia

How income tax appears on Australian payslips

PAYG Calculator

Standalone PAYG withholding calculator for all pay frequencies

Take-Home Pay Calculator

See your full net pay after PAYG, Medicare, and super

PAYG Withholding on Your Payslip — Key Takeaways

PAYG withholding on your Australian payslip is income tax collected in advance by your employer and forwarded to the ATO each pay run. The amount depends on your salary, pay frequency, and whether you've claimed the tax-free threshold. In 2025–26, effective tax rates range from 0% for incomes below $18,200 up to 45% above $180,000, with a separate 2% Medicare levy. Use the calculator above to verify your payslip figures, and the under/over withholding checker to spot issues before tax return time.

Next stepIf you need toUse
Calculate PAYGCheck your expected withholdingPAYG calculator above
Verify your payslipCompare against ATO tablesPAYG tax table above
Fix withholding issuesAdjust additional withholdingATO PAYG Variation (NAT 5367)
Check ATO recordsView YTD income statementmyGov → ATO → Employment
Generate a payslipCreate compliant payslip recordsPayslip generator
Use the PAYG Calculator →Generate a Payslip →

Free calculator · ATO 2025–26 rates · All pay frequencies

About This Guide

Authors: Written by David Pham (Payroll Compliance & Tax Documentation Specialist, officedraft) and reviewed for technical accuracy by Lisa Berwick (Senior Payroll Advisor, 11 years Australian payroll compliance and ATO withholding schedule experience).

Sources and references: ATO — PAYG withholding; ATO Schedule 1 formulas; ATO tax rates 2024–25; Fair Work Ombudsman — payslip requirements; ATO Tax Withheld Calculator.

Update schedule: Reviewed quarterly. ATO withholding schedules are updated each 1 July. Last reviewed: 1 June 2026.

Disclaimer: This content provides general information only and does not constitute taxation advice. Withholding calculations are estimates based on ATO Schedule 1. Individual circumstances (HECS/HELP, salary sacrifice, Medicare Levy Surcharge, offsets) will affect your actual withholding. For personalised advice, consult a registered tax agent or use the ATO's official Tax Withheld Calculator.