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  • How to work out the withholding amount

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    To work out the amount you need to withhold from an additional payment, you must use either Method A or Method B.

    Using Method B produces a withholding outcome that more closely approximates your payee’s end-of-year tax liability.

    Attention

    Calculations made using either method are acceptable to work out the withholding amount. If your calculation using either method results in a negative amount, you treat the result as nil.

    End of attention

    How do you use Method A?

    Use this method for any additional payments made regardless of the financial year the additional payment applies to. This includes all back payments, commissions, bonuses or similar payments.

    This method calculates withholding by apportioning additional payments made in the current pay period over the number of pay periods in a financial year, and applying that average amount to the gross earnings in the current pay period.

    Attention

    I f you are paying a commission, bonus or similar payment for a defined period of less than 12 months, you can choose to calculate withholding by using the number of pay periods the payment relates to at step 3. For example, if a commission relates to four weeks and the payee is paid weekly, you divide the commission by four pay periods at step 3, rather than 52 pay periods.

    End of attention
    Step Instruction

    1

    Work out your payee’s gross earnings excluding any additional payments for the current pay period. Ignore any cents.

    2

    Use the relevant tax table to find the amount to be withheld from your payee’s gross earnings in step 1.

    3

    Add any additional payments to be made in the current pay period together and divide the total by the number of pay periods in the financial year (that is, 52 weekly pay periods, 26 fortnightly pay periods or 12 monthly pay periods). Ignore any cents.

    4

    Add the amount at step 3 to the gross earnings at step 1.

    5

    Use the relevant tax table to find the amount to be withheld from the amount at step 4.

    6

    Subtract the amount at step 2 from the amount at step 5.

    7

    Multiply the amount at step 6 by the number of pay periods used in step 3.

    8

    Multiply the additional payment being made in the current pay period by 46.5%.

    9

    Use the lesser amount of step 7 and step 8 for the withholding on the additional payment. Ignore any cents.

    10

    Work out the total PAYG withholding for the current pay period by adding the withholding on the additional payment (step 9) to the withholding on the gross earnings (step 2).

    How do you use Method B?

    Use Method B (i) for any back payments applied to specific periods in the current financial year.

    Use Method B (ii) for either:

    • back payments that relate to a prior financial year
    • any additional payments (including commissions, bonuses or similar payments) that don’t relate to a single pay period regardless of the financial year the additional payment applies to.

    If you are making back payments applying to current and previous financial years, apportion the back payment between those years and then use the applicable method for each component to calculate withholding.

    If you are making multiple additional payments:

    • in the current pay period, you first need to calculate withholding on the total of any current financial year back payments (including lump sum in arrears) then calculate the withholding on any other additional payments
    • in the current financial year, that is, you made an additional payment to the payee in a previous pay period, do not recalculate the withholding for the additional payment previously made.

    (i) Back payments applied to specific periods in the current financial year

    This method recalculates withholding for each pay period the back payment applies.

    Step Instruction

    1

    Work out how much of the back payment applied to each earlier pay period in the current financial year.

    2

    For the first affected pay period, add the back payment relevant to that period to the normal earnings1 previously paid to get total earnings for that period.

    3

    Use the relevant tax table to find the amount to be withheld from the total earnings for that period.

    4

    Subtract the amount previously withheld for the period from the amount at step 3.

    5

    Repeat steps 2–4 for each pay period affected. Total the amounts calculated in step 4 for each pay period for the withholding on the back payment.

    6

    Use the relevant tax table to find the amount to be withheld from your payee’s gross earnings (excluding additional payments) for the current pay period.

    7

    Work out the total PAYG withholding for the current pay period by adding the withholding on the back payment (step 5) to the withholding on the gross earnings (step 6).

    1 See Terms we use for the definition of normal earnings.

    (ii) Additional payments applied over the whole financial year

    This method calculates withholding by averaging all additional payments made in the current financial year over the number of pay periods in a financial year, and applying that to the average total earnings to date.

    Step Instruction

    1

    Calculate the average total earnings2 paid to your payee over the current financial year to date. Ignore any cents.

    2

    Use the relevant tax table to find the amount to be withheld from the average total earnings in step 1.

    3

    Add all additional payments made in the current financial year if Method B (ii) was used to calculate the withholding, to the additional payment in current pay. Then divide by the number of pay periods in the financial year (that is, 52 weekly pay periods, 26 fortnightly pay periods or 12 monthly pay periods). Ignore any cents.

    4

    Add the amount at step 3 to the average total earnings at step 1.

    5

    Use the relevant tax table to find the amount to be withheld from the amount at step 4.

    6

    Subtract the amount at step 2 from the amount at step 5.

    7

    Multiply the amount in step 6 by the number of pay periods used in step 3.

    8

    Subtract any amounts previously withheld from additional payments in the current financial year if Method B (ii) was used, from the amount at step 7.

    9

    Multiply the additional payment being made in the current pay period by 46.5%.

    10

    Use the lesser amount of step 8 and step 9 for the withholding on the additional payment. Ignore any cents.

    11

    Use the relevant tax table to find the amount to be withheld from your payee’s gross earnings (excluding additional payments) for the current pay period.

    12

    Work out the total PAYG withholding for this pay period by adding the withholding on the additional payment (step 10) to the withholding on the gross earnings (step 11).

    2 See Terms we use for the definition of average total earnings.
    Last modified: 29 Oct 2013QC 34732