Pay As You Earn (PAYG) Tax in Australia for 2024-2025
The Pay As You Earn (PAYE or more commonly PAYG) tax system has 2 streams, PAYG-I for investment income and PAYG-W for salary and wages. It’s a method of income tax collection that applies to employees and typically calculated by their employer. Under PAYG, employers deduct tax from their employees’ salaries or wages and remit it directly to the Australian Taxation Office (ATO). This process ensures that employees contribute to their income tax obligations as they earn, reducing the need for large end-of-year tax payments. PAYG deductions cover various income sources, including wages, salary, commissions, and bonuses.
If you want to find your expected witholdings per pay period, the ATO provides a calculator you can find here➔ Tax withheld for individuals calculator
How PAYG Works
The amount of PAYG tax withheld depends on the employee's income, tax-free threshold, and any applicable tax offsets or rebates. The ATO provides tax tables that guide employers on how much tax to withhold, ensuring the correct amount is collected over the year. Employees can also adjust their PAYG deductions through their tax file number (TFN) declaration or by applying for specific variations if their circumstances change. The goal is to withhold an appropriate amount from each pay period to meet your year end tax obligation. For the 2024-2025 fiscal year, that would be:
| Income Range | Tax Rates |
|---|---|
| Up to $18,200 | 0% |
| $18,201 - $45,000 | $0 + 16% over $18,200 |
| $45,001 - $135,000 | $4,228 + 30% over $45,000 |
| $135,001 - $190,000 | $31,228 + 37% over $135,000 |
| $190,001 and above | $51,578 + 45% over $190,000 |
Benefits of PAYG
The PAYG system benefits both employees and the ATO by breaking tax payments into manageable amounts throughout the year. It minimizes the chances of debt accrual at tax time and simplifies the tax return process.
For employees looking to avoid a significant tax bill at the end of the year or wanting to better manage their cash flow, the PAYG system offers a structured and effective way to stay on top of income tax obligations.
As tax regulations change, consulting with a professional tax accountant can help you stay compliant and make the most of any tax benefits or deductions available.