Schedule 1 – Statement of formulas for calculating amounts to be withheld

For payments made on or after 1 October 2016

This document is a withholding schedule made by the Commissioner of Taxation in accordance with sections 15-25 and 15-30 of Schedule 1 to the Taxation Administration Act 1953 (TAA). It applies to withholding payments covered by Subdivisions 12-B (except sections 12-50 and 12-55), and 12-D of Schedule 1 to the TAA.

Using this schedule

If you develop your own payroll software package, this schedule provides the formulas that you will need to calculate the amounts to be withheld from payments made on a weekly, fortnightly, monthly or quarterly basis.

To assist employers who do not have a payroll software package our website makes available:

• a tax withheld calculator, and
• tax tables

which are based on the formulas in this schedule.

Payments covered include:

• salary, wages, allowances and leave loading paid to employees
• paid parental leave
• directors' fees
• salary and allowances paid to office holders (including members of parliament, statutory office holders, defence force members and police officers)
• payments to labour-hire workers
• payments to religious practitioners
• government pensions
• government education or training payments
• compensation, sickness or accident payments that are calculated at a periodical rate and made because a person is unable to work (unless the payment is made under an insurance policy to the policy owner).

Get it done

You can download a printable version of Statement of formulas for calculating amounts to be withheld (PDF, 412KB)This link will download a file (NAT 1004) in Portable Document Format (PDF).

Coefficients for calculation of amounts to be withheld (withholding amounts) from weekly payments

Notes

1. If you have 27 fortnightly, or 53 weekly pays in a financial year, refer to withholding additional amounts from employee earnings.
2. Scales 1, 2, 3, 5 and 6 may be applied only where employees have provided their TFN.
3. For scale 4 no coefficients are necessary. To calculate withholding, apply the tax rate to earnings, ignoring any cents in earnings and in the withholding result.
4. Scale 1 and 2 apply whether or not the employee is entitled to any leave loading.
5. Tax offsets may be allowed only where scales 2, 5 or 6 are applied.
6. All scales include the Temporary Budget Repair Levy.
7. Scale 1, 2, 4 and 6 incorporate the Medicare levy. Scale 4 incorporates the Medicare levy for residents only.
8. For scale 2 no Medicare levy is payable by a person whose taxable income for the year is $21,335 ($410 per week) or less. Where the taxable income exceeds $21,335 but is less than $26,668 ($512 per week), the levy is shaded in at the rate of 10% of the excess over $21,335. Where a person’s taxable income is $26,668 ($512 per week) or more, Medicare is levied at the rate of 2% of total taxable income.
9. The Medicare levy is also shaded in for scale 6. The Medicare levy parameters for scales 2 and 6 are as follows:

About this schedule

Amounts to be withheld from payments made weekly, fortnightly, monthly and quarterly, as set out in the relevant PAYG withholding tax table, can be calculated using the formulas and coefficients contained in this schedule.

Separate formulas apply to:

• employees who have not claimed the tax-free threshold
• foreign residents
• employees claiming a full exemption from Medicare levy
• employees claiming a half exemption from Medicare levy
• employees who have claimed the tax-free threshold.

Find out more

• Tax file number (TFN) declarations
• Withholding declarations
• Allowances
• Holiday pay, long service leave and employment termination payments
• Claiming tax offsets
• Medicare levy adjustment

Using a formula

The formulas comprise linear equations of the form y = ax – b, where:

• y is the weekly withholding amount expressed in dollars
• x is the number of whole dollars in the weekly earnings plus 99 cents
• a and b are the values of the coefficients for each set of formulas for each range of weekly earnings (or, in the case of fortnightly, monthly or quarterly earnings, the weekly equivalent of these amounts).

The formulas relate only to the calculation of withholding amounts before any tax offsets and Medicare levy adjustments are allowed. For instructions on the treatment of tax offsets and Medicare levy adjustments, refer to Tax offsets and Medicare levy adjustment.

For sample data to verify that the software program is calculating the correct withholding amounts and Medicare levy adjustments, see Withholding amounts and Medicare levy adjustments.

Withholding amounts calculated using these formulas may vary slightly to those calculated using the method set out in the footnote to the appropriate PAYG withholding tax table. This applies if earnings exceed $3,275 weekly or $6,550 fortnightly.

Rounding of withholding amounts

Withholding amounts calculated as a result of applying the above formulas are rounded to the nearest dollar. Values ending in 50 cents are rounded to the next higher dollar. Do this rounding directly – that is, do not make a preliminary rounding to the nearest cent.

Use these rounding rules across all scales except scale 4 (where employee does not provide a TFN). For scale 4, cents are ignored when applying the tax rate to earnings and when withholding amounts are calculated.

When there are 53 pays in a financial year

In some years, you may have 53 pays instead of the usual 52. As this schedule is based on 52 pays, the extra pay may result in insufficient amounts being withheld. You should let your employees know when this occurs so if they are concerned about a shortfall in tax withheld, they can ask you to withhold the additional amount in the table below.

When there are 27 pays in a financial year

In some years, you may have 27 pays instead of the usual 26. As this schedule is based on 26 pays, the extra pay may result in insufficient amounts being withheld. You should let employees know when this occurs so if they are concerned about a shortfall in tax withheld, they can ask you to withhold the additional amounts in the table below.

Working out the weekly earnings

The method of working out the weekly earnings (x) for the purpose of applying the formulas is as follows:

Calculating withholding fortnightly, monthly or quarterly amounts

First calculate the weekly equivalent of fortnightly, monthly or quarterly earnings. If you pay:

• fortnightly – divide the sum of the fortnightly earnings and the amount of any allowances subject to withholding by two. Ignore any cents in the result and then add 99 cents.
• monthly – obtain the sum of the monthly earnings and the amount of any allowances subject to withholding (if the result is an amount ending in 33 cents, add one cent), multiply this amount by three and then divide by 13. Ignore any cents in the result and then add 99 cents.
• quarterly – divide the sum of the quarterly earnings and the amount of any allowances subject to withholding by 13. Ignore any cents in the result and then add 99 cents.

Then calculate fortnightly, monthly or quarterly withholding amounts as follows:

• fortnightly – work out the rounded weekly withholding amount applicable to the weekly equivalent of earnings, before any adjustment for tax offsets. Multiply this amount by two.
• monthly – work out the rounded weekly withholding amount applicable to the weekly equivalent of earnings, before any adjustment for tax offsets. Multiply this amount by 13, divide the product by three and round the result to the nearest dollar.
• quarterly – work out the rounded weekly withholding amount applicable to the weekly equivalent of earnings, before any adjustment for tax offsets. Multiply this amount by 13.