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What is PAYG withholding? How to register and stay compliant

what is PAYG withholding?

Have you ever heard of PAYG withholding and been confused by it?  You’re not alone! The Australian Tax Office (ATO) loves their acronyms, and PAYG withholding can sound about as exciting as watching paint dry.  It’s a term used by the ATO to describe what it does: 

Withhold tax from your employees’ pay before handing it over. It’s like taking a little out of your own pay packet before you get it.

This blog will help you understand PAYG withholding, from what it is to how to register and stay on the good side of the ATO. Now is the time to take note, read on, and let Payroller clarify a few things for you.

Short on time? Here are some critical takeaways on PAYG withholding for small business owners:

  • PAYG withholding is a way to spread out employee payroll tax payments throughout the year.
  • It’s mandatory for businesses that pay wages or salaries to employees.
  • You can register for PAYG withholding online through the ATO Business Portal.
  • To stay compliant, you must report and pay the tax you withhold on time to the ATO.

What is PAYG (Pay As You Go)?

Rather than paying taxes all at once at tax time, PAYG spreads payments throughout the year. The process is similar to paying in instalments, but for taxes! It’s set up to help businesses with their cashflow. 

What is PAYG withholding?

PAYG withholding is when employers take out a bit of tax money from their employees’ paychecks and send it directly to the tax office. This way, tax gets paid gradually throughout the year instead of in one big chunk at tax time.

What is PAYG instalments?

PAYG instalments is a system for businesses and some people with investment income. Here, you guess how much tax you’ll owe for the year and make small payments to the tax office every three months. It helps you manage your tax bill and avoid a big payment at the end of the year.

What is voluntary PAYG?

Voluntary PAYG is like a do-it-yourself version of PAYG instalments. Even if you’re not required to, you can choose to make regular tax payments throughout the year. It’s a way to spread out your tax payments and make them more manageable.

PAYG eligibility: Does it apply to your business?

If you pay wages or salaries to employees, then yes, PAYG withholding applies to you. It’s pretty much mandatory for any business that has employees on the payroll.

Let’s say you run a small cafe and have two part-time employees. You’ll need to register for PAYG withholding and withhold tax from their wages before paying them. Meanwhile, if you’re a freelance web designer and bring on a virtual assistant to help you with some projects, you might need to consider voluntary PAYG withholding if the assistant meets the criteria for being an employee.

Are you unsure if someone is an employee or a contractor? The ATO has a handy tool to help you figure it out.

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When to report PAYG withholding

After you register for PAYG withholding, you must report and pay the tax you have withheld from your employees’ wages to the ATO regularly. The frequency depends on how much tax is withheld, but it is usually quarterly or monthly.

Payroller can help you stay on top of your PAYG reporting deadlines and ensure your payments are made on time.

Stay compliant with ATO tax and reporting requirements

We all know that dealing with the ATO can be a headache. By registering for PAYG withholding, reporting, and paying your tax on time, you are doing your part to stay compliant.

Payroller can ensure you’re meeting all your PAYG withholding obligations, so you can focus on running your business with peace of mind.

Solving the payroll burden with Payroller

Managing payroll, including PAYG withholding, can be a time-consuming and complex task, especially for small businesses. Payroller can help! 

Here’s how:

  • Streamlined payroll process: Payroller automates many payroll tasks, including calculating PAYG withholding amounts and generating payment summaries. This frees you up to focus on running your business.
  • Reduced risk of errors: Manual calculations can lead to mistakes. Payroller ensures accurate calculations, minimising the risk of errors and potential ATO fines.
  • Save time and money: By automating tasks and reducing errors, Payroller saves you valuable time and resources. You can invest this time and money back into growing your business.
  • Peace of mind: Knowing your PAYG withholding is taken care of allows you to relax and focus on what matters most – your customers and your business success.

Understanding PAYG withholding is essential for any Australian business owner with employees. By following the steps outlined in this blog and utilising a user-friendly payroll solution like Payroller, you can ensure a smooth payroll experience and avoid any unwanted attention from the ATO. Remember, staying compliant and focusing on running your business are key to achieving success!

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Frequently asked questions about PAYG withholding

Missing PAYG is a common tax mistake. If you are unable to pay your PAYG withholding on time, you need to contact the ATO as soon as possible. You may be able to arrange a payment plan with them.

A PAYG payment summary needs to be lodged with the ATO every year. You can use this report to keep track of the taxes you’ve withheld from your employees’ pay slips during the year.

If you no longer have employees and don’t need to withhold tax from anyone’s wages, you can cancel your PAYG withholding registration. The ATO Business Portal allows you to do this.

There is no threshold for PAYG withholding. If you pay wages or salaries to employees, you need to register for PAYG withholding, regardless of the amount.

If you think you’re going to withhold too much or too little tax from your employees’ wages, you can vary your PAYG instalments. You can do this through the ATO Business Portal.

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