PAYG Withholding
The system where employers withhold income tax from employees' wages and remit it to the ATO throughout the year.
Pay As You Go (PAYG) withholding is the system under which employers, and other payers, deduct income tax from payments they make to employees, contractors (who don't quote an ABN), and other recipients. The withheld amounts are sent to the ATO, usually quarterly via the Business Activity Statement (BAS). This ensures tax is collected progressively throughout the year rather than as a lump sum at year-end.
The amount withheld is calculated using the ATO's withholding tables, which factor in the tax-free threshold (if claimed), the Medicare levy, and any adjustments for HELP/HECS debt repayments. Your employer reports your total income and tax withheld on an income statement (formerly called a payment summary or group certificate), which is accessible through myGov from mid-July each year.
If too much tax has been withheld during the year (e.g., because you have deductions to claim), you'll receive a refund when you lodge your tax return. If too little was withheld (e.g., because you have multiple jobs or investment income), you'll have a tax debt to pay. You can use a PAYG withholding variation if you want your employer to withhold less tax because you expect to have significant deductions.