AU Pay & Tax

PAYG

PAYG tax explained (Australia)

A quick guide to how Pay As You Go (PAYG) withholding works, why your tax changes between pays, and what affects your take-home pay.

What is PAYG?

PAYG (Pay As You Go) is the Australian system where employers withhold income tax from your pay and send it to the ATO. It spreads your tax across the year so you don’t face one large bill at tax time.

  • Based on resident marginal tax rates for the year.
  • Calculated each pay, then adjusted for your earnings and declared tax-free threshold.
  • Shown on your payslip as tax withheld or PAYG withholding.

How marginal tax rates work

Australia uses progressive tax brackets. Each bracket only taxes the income inside that band. Higher rates apply to the portion above each threshold, not to your entire income.

Example (resident 2025–26): income from $0–$18,200 is untaxed; income from $18,201–$45,000 is taxed at 16% on the dollars over $18,200; higher bands use 30%, 37%, and 45% on the portions above their thresholds.

Why your tax changes each pay

  • Hours or overtime change between pays.
  • Switching the tax-free threshold on/off changes withholding.
  • Additional withholding requested by you or applied by payroll.
  • HELP/HECS or other deductions applied by your employer.
  • Lump-sum bonuses or allowances can move part of income into a higher bracket for that pay.

FAQ

How does PAYG work?

Employers withhold tax each pay using ATO formulas and your TFN declaration (threshold on/off). The withheld amount is sent to the ATO and reconciled at tax time when you lodge.

Why is my tax different each pay?

Fluctuating hours, bonuses, overtime, or a change to your tax-free threshold will alter withholding. Some employers also add a buffer to reduce the chance of under-withholding.

What affects PAYG withheld?

Your gross pay for the period, tax-free threshold election, additional withholding requests, and any adjustments for HELP/HECS or allowances.

Next step

Estimate your take-home pay with the Australian Pay & Tax Calculator, or view the 2025–26 tax brackets.

Use the main calculatorView tax brackets