PAYG Withholding Calculator

The 47% rate, and why it is not a tax rate

When a payee does not quote an ABN and no voluntary agreement is in place, you must withhold 47%: the top marginal rate of 45% plus the 2% Medicare levy. It is deliberately blunt and it is not an estimate of the person's tax position.

The payee gets the difference back by lodging a return. But it lands as a large immediate reduction in what they are paid, which is why locums are often surprised and practices are often caught short.

The fix is administrative, not financial: get the ABN on file before the first payment. If a voluntary agreement is in place, use the agreed rate instead.

What staff withholding actually comprises

Withholding for employees is income tax calculated on annualised earnings, plus the Medicare levy, plus the Medicare levy surcharge where the employee has no private hospital cover and earns above the threshold, plus any HELP or student debt repayment.

The Medicare levy is shaded for lower incomes rather than applying a flat 2% from the first dollar, so the effective rate rises gradually as income moves through the shading range.

HELP repayment is calculated on repayment income, which is broader than gross pay: it adds back amounts such as reportable fringe benefits. A doctor with a large HELP balance and a salary-packaged car can therefore have a higher repayment obligation than their gross pay suggests. This calculator works from gross pay, so it understates that case rather than modelling it.

Withholding is an instalment, not the tax paid

What comes out of a pay run is not the employee's tax. It is an instalment collected through the year and credited against whatever they owe when they lodge, so over-withholding produces a refund and under-withholding produces a debt.

That matters for how much precision the figure deserves. Being a few hundred dollars out over a year changes when the employee gets their money back, not what they ultimately pay. It is worth being accurate, but it is not worth treating a small difference as an error.

It also means the annualised method is doing something specific: it assumes the current pay rate continues for the rest of the year. Change the rate and the estimate changes with it, which is why a pay rise mid-year produces a step in withholding rather than a gradual adjustment.

What changes withholding during the year

Four things move it, and all four are worth checking when a figure looks wrong. A pay rise or a change in hours recomputes the annualised estimate. Taking out private hospital cover removes the surcharge from the next pay run onwards. A new HELP debt adds a repayment that was not there before.

The fourth is the one practices most often get wrong: a second job. The tax-free threshold can only be claimed with one employer, so an employee who does not tick the box correctly on their second job's declaration will have too little withheld there and a debt at the end of the year. It is not the practice's error to fix, but it is worth knowing before it becomes the practice's problem to explain.

Surcharge thresholds are per household

The Medicare levy surcharge threshold is roughly double for a family compared with a single person, and it increases further for each dependent child. An employee just over the single threshold may owe nothing at all once their household is taken into account.

This is the most common source of over-withholding for practice staff, and it is worth checking before you accept a default from payroll software.

What this calculator does not do

It does not replace payroll software. It excludes tax offsets other than the ones modelled, excludes zone and overseas forces offsets, and excludes reportable fringe benefits amounts, which is why a salary-packaged arrangement will not be reflected in the HELP figure.

It also assumes a standard full-year earnings pattern and does not handle mid-year changes, termination payments or lump sums. A final pay with unused leave on it is a different calculation from a normal pay run, and this is not that calculation.

Use it to sanity-check a figure, to understand why a number looks the way it does, and to work out the impact of a change before it hits a pay run. For actual withholding, rely on your payroll system and the ATO tables.