PAYG withholding estimator

What the result means

PAYG withholding is what your employer sends to the ATO out of each pay. It is a prepayment, not your final tax — the ATO works out what you actually owe when you lodge, and the difference becomes a refund or a bill. These figures come from the ATO's Schedule 1 formula: Scale 2 when you have claimed the tax-free threshold on your TFN declaration, Scale 1 when you have not. Withholding is worked out one pay at a time and rounded to the nearest dollar, so a year of pays will never sum exactly to the annual assessment.

How it is calculated

x = whole dollars of weekly equivalent + 0.99. y = ax − b, rounded to the nearest dollar

• Weekly equivalent: The pay converted to a weekly amount: fortnightly ÷ 2, or monthly × 3 ÷ 13.
• x: The weekly equivalent with the cents discarded and 99 cents added, as the ATO instruction requires.
• a, b: Published 2026–27 weekly coefficients for the band x falls in. They already include the Medicare levy.
• Scale 2: Resident claiming the tax-free threshold. Nothing is withheld below $362 a week.
• Scale 1: Resident who did not claim the tax-free threshold — typically a second job. Withholding starts from the first dollar.

The schedule works in weekly units because one table has to serve every pay cycle. Fortnightly pay is halved, withheld weekly, then doubled; monthly pay is converted with × 3 ÷ 13. The ATO's instruction is to ignore the cents and add 99, so x always sits at the top of a whole dollar, and the coefficients a and b are then a straight line that tracks the bracket table plus the Medicare levy across each band.

Worked example

$132,000 a year paid monthly, Scale 2

A resident employee who has claimed the tax-free threshold, with no study loan and no extra withholding requested.

Monthly gross

$132,000 ÷ 12 = $11,000

Weekly equivalent

$11,000 × 3 ÷ 13 = $2,538.46

x

$2,538 + $0.99 = $2,538.99

Coefficients

x is under $2,596, so a = 0.32 and b = 181.7319

Weekly y

0.32 × $2,538.99 − 181.7319 = $630.74, rounded to $631

Monthly withheld

$631 × 13 ÷ 3 = $2,734.33, rounded to $2,734

Monthly take-home

$11,000 − $2,734 = $8,266

Twelve of those pays withhold $32,808, against a year-end assessment of $32,760 on $132,000 — $30,120 of income tax and $2,640 of Medicare levy — so roughly $48 comes back. Switch to Scale 1 and the weekly figure is $761 instead of $631.

What Scale 1 and Scale 2 actually change

Scale 2 has a nil band: any weekly pay under $362 has nothing withheld, which is roughly the $18,200 tax-free threshold spread across 52 weeks. Scale 1 has no nil band at all — its first coefficient charges 15% from the first dollar — so a casual second job paying $100 a week has $15 withheld under Scale 1 and nothing under Scale 2.

Scale 1 also withholds more at every level, and by considerably more than the threshold alone accounts for. On a $132,000 salary the weekly figures are $761 under Scale 1 against $631 under Scale 2: $130 a week, or $6,760 across the year. Scale 1 exists for pay that will be stacked on top of other income, where this employer cannot know your real marginal rate, and the published coefficients err on the high side rather than leave you with a bill. If Scale 1 is being applied to your only job, you are being heavily over-withheld and will get the excess back at lodgement.

Why 26 fortnights of withholding does not equal your annual tax

The smaller reason is rounding. The schedule produces a whole-dollar amount for each pay and that error accumulates. On a steady $132,000 paid monthly, $2,734 is withheld each month, or $32,808 for the year, while the year-end assessment on $132,000 is $32,760 — $30,120 of income tax plus $2,640 of Medicare levy. The $48 gap is pure rounding and comes back as a refund.

The much larger reason is that the schedule annualises each pay in isolation, assuming every pay you receive is typical of the whole year. Take $84,500 earned as 26 steady fortnights of $3,250: $678 is withheld each time, $17,628 for the year against $17,560 assessed, so $68 over. Now earn the same $84,500 lumpily, as 13 fortnights of $1,500 and 13 of $5,000: withholding is $148 and $1,238, totalling $18,018. Identical income, but $458 over-withheld instead of $68, because each $5,000 fortnight was treated as though you earned $130,000 a year.

Bonuses, back pay and the first pay of a new job

Any unusually large pay is over-withheld for exactly that reason. A bonus paid inside an ordinary pay cycle lifts that period's weekly equivalent into a higher band, so the withholding on it reflects a salary you do not earn. The ATO publishes a separate method for bonuses, commissions and back payments (Schedule 5) that some payrolls apply instead; this calculator does not, and treats whatever you enter as ordinary earnings for the period.

The mirror image happens at the beginning and end of employment. Start a job in February and your first pays are withheld as though that rate had applied all year, so you finish the year over-withheld. Nothing is lost — lodging squares it up — but it does mean a large refund is not by itself evidence that you were taxed unfairly.

What to do if you are consistently over- or under-withheld

If you are over-withheld and happy to wait, do nothing: the refund arrives after you lodge. If you would rather have the money during the year, you can apply to the ATO for a PAYG withholding variation, which authorises your employer to withhold less. That is worth doing for large, predictable deductions — a negatively geared rental, say — not for a $48 rounding difference.

Being under-withheld is the case to act on, because it becomes a bill. The usual causes are a second job where both employers apply Scale 2, so the $18,200 threshold is effectively claimed twice; a study loan your employer does not know about; or the Medicare levy surcharge, which is never withheld from pay. You can ask your employer to withhold an additional amount each pay. Work out the year-end position with income-tax, a study loan with help-hecs, and the surcharge with medicare-levy-surcharge.

Questions