Available methods
To work out the amount you need to withhold from an additional payment, you must use either Method A or Method B.
Using Method B is more complex but produces a withholding amount that more closely approximates the actual tax payable.
Calculations made using either method are acceptable to work out the withholding amount. If your calculation using either method results in a negative amount, treat the result as nil.
Using Method A
Use this method for any additional payments made, regardless of the financial year the additional payment applies to. This includes all back payments, commissions, bonuses or similar payments.
This method calculates withholding by apportioning additional payments made in the current pay period over the number of pay periods in a financial year and applying that average amount to the gross earnings in the current pay period.
If you are paying a commission, bonus or similar payment for a defined period of less than 12 months, you can choose to calculate withholding by using the number of pay periods the payment relates to at step 3. For example, if a commission relates to four weeks and the employee is paid weekly, you divide the commission by four pay periods at step 3, rather than 52 pay periods.
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Step |
Instruction |
|---|---|
|
1 |
Work out your employee’s gross earnings excluding any additional payments for the current pay period. Ignore any cents. |
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2 |
Use the relevant tax table to find the amount to be withheld from your employee’s gross earnings in step 1. |
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3 |
Add any additional payments to be made in the current pay period together and divide the total by the number of pay periods in the financial year (that is, 52 weekly pay periods, 26 fortnightly pay periods or 12 monthly pay periods). Ignore any cents. |
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4 |
Add the amount at step 3 to the gross earnings at step 1. |
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5 |
Use the relevant tax table to find the amount to be withheld from the amount at step 4. |
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6 |
Subtract the amount at step 2 from the amount at step 5. |
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7 |
Multiply the amount at step 6 by the number of pay periods used in step 3. |
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8 |
Multiply the additional payment being made in the current pay period by 47%. |
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9 |
Use the lesser amount of step 7 and step 8 for the withholding on the additional payment. Ignore any cents. |
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10 |
Work out the total PAYG withholding for the current pay period by adding the withholding on the additional payment (step 9) to the withholding on the gross earnings (step 2). |
Using Method B
Use Method B(i) for any back payments applied to specific periods in the current financial year.
Use Method B(ii) for either:
- back payments that relate to a prior financial year
- any additional payments (including commissions, bonuses or similar payments) that don’t relate to a single pay period, regardless of the financial year the additional payment applies to.
If you are making back payments applying to current and previous financial years, apportion the back payment between those years and then use the applicable method for each component to calculate withholding.
If you are making multiple additional payments:
- in the current pay period, you first need to calculate withholding on the total of any current financial year back payments (including lump sum in arrears) then calculate the withholding on any other additional payments
- in the current financial year (that is, you made an additional payment to the employee in a previous pay period), do not recalculate the withholding for the additional payment previously made.
Method B(i) Back payments applied to specific periods in the current financial year
This method recalculates withholding for each pay period the back payment applies.
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Step |
Instruction |
|---|---|
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1 |
Work out how much of the back payment applied to each earlier pay period in the current financial year. |
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2 |
For the first affected pay period, add the back payment relevant to that period to the normal earnings previously paid to get total earnings for that period. |
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3 |
Use the relevant tax table to find the amount to be withheld from the total earnings for that period. |
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4 |
Subtract the amount previously withheld for the period from the amount at step 3. |
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5 |
Repeat steps 2–4 for each pay period affected. Total the amounts calculated in step 4 for each pay period for the withholding on the back payment. |
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6 |
Use the relevant tax table to find the amount to be withheld from your employee’s gross earnings (excluding additional payments) for the current pay period. |
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7 |
Work out the total PAYG withholding for the current pay period by adding the withholding on the back payment (step 5) to the withholding on the gross earnings (step 6). |
Method B(ii) Additional payments applied over the whole financial year
This method calculates withholding by averaging all additional payments made in the current financial year over the number of pay periods in a financial year and applying that to the average total earnings to date.
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Step |
Instruction |
|---|---|
|
1 |
Calculate the average total earnings paid to your employee over the current financial year to date. Ignore any cents. |
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2 |
Use the relevant tax table to find the amount to be withheld from the average total earnings in step 1. |
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3 |
Add all additional payments made in the current financial year if Method B(ii) was used to calculate the withholding, to the additional payment in current pay. Then divide by the number of pay periods in the financial year (that is, 52 weekly pay periods, 26 fortnightly pay periods or 12 monthly pay periods). Ignore any cents. |
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4 |
Add the amount at step 3 to the average total earnings at step 1. |
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5 |
Use the relevant tax table to find the amount to be withheld from the amount at step 4. |
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6 |
Subtract the amount at step 2 from the amount at step 5. |
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7 |
Multiply the amount in step 6 by the number of pay periods used in step 3. |
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8 |
Subtract any amounts previously withheld from additional payments in the current financial year if Method B(ii) was used, from the amount at step 7. |
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9 |
Multiply the additional payment being made in the current pay period by 47%. |
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10 |
Use the lesser amount of step 8 and step 9 for the withholding on the additional payment. Ignore any cents. |
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11 |
Use the relevant tax table to find the amount to be withheld from your employee’s gross earnings (excluding additional payments) for the current pay period. |
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12 |
Work out the total PAYG withholding for this pay period by adding the withholding on the additional payment (step 10) to the withholding on the gross earnings (step 11). |
Withholding limit
If your employee has a Higher Education Loan Program (HELP), VET Student Loan (VSL), Financial Supplement (FS), Student Start-up Loan (SSL) or Australian Apprenticeship Support Loan (AASL) debt, see Study and training support loans and additional payments.
If you use Method A or Method B(ii), the amount of tax to be withheld from an additional payment is limited to a maximum of 47% of the additional payment.
If the withholding amount calculated (including a study and training support loan component) using Method A or Method B(ii) exceeds 47% of the additional payment being made, then the amount is reduced to be equal to 47% of that payment. The withholding limit applies to the additional payment only and not to normal earnings for the current pay period.
For some employees, the withholding limit may result in their withholding amounts not being sufficient to cover their end-of-year tax liability, as their total earnings for the financial year may exceed the study and training support loan repayment threshold or attract a higher rate of tax. Under these circumstances, your employee can arrange an upwards variation by entering into an agreement with you to vary the rate or amount of withholding.
For more information about withholding variations, refer to:
- Variations – for employers
- Varying your PAYG withholding – for employees.
For more information about study and training support loans repayment thresholds, see Study and training loan repayment thresholds and rates.
Commissions, bonuses or similar payments
If a commission, bonus or similar payment relates to work your employee performed for more than one pay period (or for an undefined period), calculate withholding by applying either Method A or Method B(ii).
Do not use this schedule for payments for a single pay period.
If the commission, bonus or similar payment relates to work your employee performed in a single pay period (for example, a week, a fortnight or a month) the amount is added to all their other earnings for the current period. Withholding is then calculated using the standard PAYG withholding tax tables.
Study and training support loans and additional payments
If your employee has advised you they have a Higher Education Loan Program (HELP), VET Student Loan (VSL), Financial Supplement (FS), Student Start-up Loan (SSL) or Australian Apprenticeship Support Loan (AASL) debt on their Tax file number declaration or Withholding declaration, you must also withhold from the additional payment using the relevant study and training support loans tax tables.
Calculate the amounts you need to withhold from additional payments for study and training support loans by using the same method you used to calculate the PAYG withholding amount from the additional payment.
For example, if you calculate the amount to be withheld from the additional payment using Method A, use the same method to calculate the amounts to be withheld for study and training support loans purposes.
How to calculate withholding on the additional payment if it is calculated separately to the study and training support loans components
If you calculate withholding separately, you need to make sure that the withholding limit in Method A and Method B(ii) applies to the combined total calculated for the additional payment and the study and training support loans components. For example, at step 9 in Method A, you must combine the amounts from the two separate calculations used for step 7 before comparing it to the amount calculated at step 8.
To combine PAYG withholding with study and training support loan instead of repeating the calculation separately for each component, use Schedule 8 – Statement of formulas for calculating study and training support loans components.
The results obtained when using the coefficients in the above schedule may differ slightly from the sums of the amounts shown in the PAYG tax tables. Either calculation is acceptable.
Variations
If your employee has a withholding variation in place for the current financial year, use one of the following to work out the amount of withholding from additional payments:
- the varied rate – if the relevant income is specified in the variation notice
- this tax table – if the relevant income is not specified in the variation notice.
If your employee had a withholding variation in place at the time the additional payment accrued but the withholding variation is no longer in effect when the additional payment is made, it does not apply when working out the amount to withhold.
Leave without pay
For the purposes of this table, any periods where your employee has taken leave without pay do not affect the calculations outlined in each of the methods.
For example, for Method A and Method B(ii), you are still required at step 3 to apportion all additional payments made by the total number of pay periods in a financial year (that is, 52 weekly pay periods, 26 fortnightly pay periods or 12 monthly pay periods).
Superannuation income streams
To work out the amount you need to withhold from the taxable component of back payments of super income streams (pensions and annuities), including lump sum payments in arrears, use either Method A or B.