PAYG withholding

What you need to do

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If you need to withhold payment from your employees, contractors or other businesses, you’ll need to:

• register for PAYG withholding before you are required to withhold from a payment
• pay the amounts you’ve withheld from wages and other payments to the ATO
• report the amounts on your activity statements
• provide PAYG withholding payment summaries to all employees and other payees
• lodge a PAYG withholding annual report.

The most common payments you will need to withhold amounts from are the ones you make to:

• employees
• directors
• workers you have a voluntary agreement with
• contractors or businesses that don’t quote their Australian Business Number (ABN) to you.

The ATO has calculators to help you work out how much you need to withhold from payments:

• Tax withheld for individuals calculator – for payments made to employees and other workers.
• Voluntary agreement calculator – for payments made to workers, such as subcontractors, who are subject to a voluntary agreement.

You can also use the Tax tables to work out how much you need to withhold from payments.

Did you know?

If you operate your business as a sole trader or partnership and you take out amounts from the business for personal use, this is not a wage and you don’t have to withhold from these amounts. However, this income will need to be included in your tax return.

A few things to remember:

• You must register for PAYG withholding before you are first required to make a payment that is subject to withholding. This is required even if you don’t withhold an amount from a payment made.
• If you cease to be an employer you should cancel your PAYG withholding registration.
• Before you enter into a work agreement or contract, you need to check that the worker is legally allowed to work in Australia.
• PAYG withholding is different to payroll tax, which is a state tax.

It’s also important that you keep the right records.