What the formulas are
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 related to 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 – see Working out the weekly earnings).
The formulas relate only to working out 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 $3,400 weekly or $6,800 fortnightly. Withholding calculated using either method is accepted.
Rounding of withholding amounts
Withholding amounts calculated as a result of applying the formulas are rounded to the nearest dollar. Values ending in 50 cents are rounded up to the next dollar. Do this rounding directly – that is, don't make a preliminary rounding to the nearest cent.
Use these rounding rules across all scales except scale 4 (where payee doesn't 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 for an individual's end of year income tax assessment. You should let your payees know when there are 53 pays.
If a payee is concerned about a tax shortfall, they can ask you to withhold an additional amount in each weekly pay period as per the table below.
|
Weekly earnings |
Additional withholding |
|---|---|
|
875 to 2,574 |
3 |
|
2,575 to 3,649 |
7 |
|
3,650 & over |
12 |
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 for an individual's end of year income tax assessment. You should let your payees know when there are 27 pays.
If a payee is concerned about a tax shortfall, they can ask you to withhold an additional amount in each fortnightly pay period as per the table below.
|
Fortnightly earnings |
Additional withholding |
|---|---|
|
1,700 to 5,199 |
12 |
|
5,200 to 7,249 |
27 |
|
7,250 & over |
48 |