If you employ staff, PAYG withholding is likely to be a regular part of your payroll process, but it is still important to understand what these amounts represent and why accurate withholding matters to both your business and your employees. With the 2026–27 financial year now underway, August is a good time to check that PAYG withholding is being calculated and reported correctly.

What is PAYG withholding?

PAYG withholding is the tax an employer deducts from an employee’s salary or wages and pays to the Australian Taxation Office on their behalf. It allows employees to pay tax progressively throughout the year rather than potentially facing the full amount when they lodge their tax return.

It is different from PAYG instalments, which are payments made towards the tax on your own business or investment income.

Why getting the amount right matters

The amount withheld can vary depending on an employee’s income, whether they claim the tax-free threshold and whether they have a study or training support loan.

This information is generally provided through a Tax file number declaration. Employees may also submit a Withholding declaration if their circumstances change.

If too little tax is withheld, the employee may have additional tax to pay when they lodge their return. If too much is withheld, they receive less take-home pay throughout the year. Incorrect amounts can also lead to differences between the employer’s payroll records, Single Touch Payroll reports and activity statements.

Why review it in August?

The ATO updated its PAYG withholding tax tables for payments made from 1 July 2026.

Most payroll software should incorporate the updated rates automatically. However, once several pay runs have been processed, employers have an opportunity to confirm that the new settings are working as expected.

A brief review should include checking that:

• Payroll software is up to date
• Employee tax details have been entered correctly
• Employees with study or training support loans are recorded correctly
• Payroll reports agree with amounts reported through Single Touch Payroll

The ATO uses information reported through STP to pre-fill PAYG withholding amounts on activity statements. These figures should still be checked against payroll records before lodgment. Further information is available in the ATO’s guidance on PAYG withholding pre-fill for activity statements.

A useful new financial year check

PAYG withholding may be a routine part of payroll, but it plays an important role in helping employees meet their tax obligations throughout the year. Getting the amount right also helps keep payroll records, Single Touch Payroll reports and activity statements consistent.

August is a practical time to review the first few pay runs of the new financial year and correct any issues before they continue across several months. A simple check now can reduce the need for later adjustments and give both employers and employees greater confidence that the correct amounts are being withheld and reported.