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Who this affects and who pays

• Who pays: employers, superannuation funds and other payers — they are required to withhold and remit amounts from payments to individuals. The instrument tells those payers how to calculate amounts to be withheld. (General rule: payer withholds; payee ultimately bears the withheld amount until assessment or refund.)

• Who is affected: all payees who receive salary, wages, allowances, pensions, annuities, super income streams or other payments covered by Subdivisions 12‑B, 12‑C and 12‑D to Schedule 1 of the TAA, and the employers/payers who make those payments. Particular groups with tailored rules include foreign residents, working holiday makers, horticultural/shearing workers, entertainers, seniors/pensioners, recipients of lump sums and people with study‑loan debts.

Why it matters (official claim and practical implications)

• Official claim: the instrument operationalises PAYG withholding by giving payers precise formulas and tables so withholding is consistent, automatable and aligned with tax law. (See Authority: made under section 15‑25 in Schedule 1 to the TAA.)

• Practical implications: payers must implement the numeric coefficients, multiple conditional scales and the ATO's rounding and conversion rules in payroll systems (or use the ATO tools). Pay systems must also track TFN status, Medicare levy variation declarations, withholding declarations, study‑loan flags and whether special schedules apply (e.g. working holiday maker registration). The instrument adds or confirms many implementation details employers must follow when withholding and reporting.

Costs, incentives and trade‑offs (mechanical effects)

• Compliance and implementation cost: multiple scales, conditional branches and new coefficients require payroll systems and providers to be updated, tested against sample data, and kept in sync with the ATO lookup tools and quick codes listed in the Guide. (Schedules 1 and 8 emphasise software implementation/testing.)

• Concentrated vs diffuse effects: the administrative burden falls mainly on payroll teams, software vendors and medium/large employers (concentrated cost), while the withheld funds are held by the Commonwealth pending assessment (diffuse fiscal effect). Employers who fail to apply the correct scale risk under‑withholding or incorrect reporting.

• Behavioural incentives: the instrument preserves existing blunt incentives to supply a TFN (large flat withholding rates—47% resident, 45% foreign—apply where TFN is not provided). It also preserves mechanisms for employees to reduce withholding via ATO variations or agreements with their employer (see schedules for variation procedures).

• Interaction with other regimes: the instrument cross‑references the TAA, PAYG tax tables and ATO web tools. It also reflects legislative and policy changes that affect withholding mechanics — for example, the move to a marginal repayment system for student loans (noted in Schedule 8), and STP Phase 2 reporting requirements and a removal of the old lump‑sum E $1,200 threshold for reporting (Schedule 5). Those changes require employers to alter reporting and calculation workflows.

Implementation risk and discretion

• Implementation risk is non‑trivial: accurate fielding requires (a) correct selection of the applicable schedule and scale per employee, (b) correct conversion of pay periods to weekly equivalents, (c) careful rounding, (d) correct handling of TFN absence and Medicare levy declarations, and (e) alignment between payroll outputs and STP labels. The instrument relies on payers to choose the right method (e.g. Method A or B for lump‑sum additional payments) and to follow multi‑step calculations; mistakes are possible and may require corrections and employee communications (e.g. back‑payment letters required under Schedule 5).

Specific mechanics employers should note (representative, not exhaustive)

• If no TFN is provided: employers must withhold 47% (resident) or 45% (foreign resident) and ignore cents when applying that withholding (see general TFN notes in multiple schedules).

• Special flat rates: return‑to‑work payments are withheld at 32% (Schedule 4).

• Working holiday makers: registered employers may withhold at 15% up to $45,000, then higher tier percentages as totals increase; unregistered employers must use foreign resident rates (Schedule 15).

• Back payments and bonuses: two calculation frameworks (Method A; Method B with B(i) and B(ii)) — each produces acceptable but different results; withholding on additional payments is capped at 47% for Method A and B(ii) (Schedule 5).

• Study & training loan (STSL) repayment component: Schedule 8 provides updated coefficients reflecting the marginal repayment system effective 2025–26; payers must add the STSL component where applicable and test software against ATO sample data.

• Super and ETPs: withholding rules for super lump sums and ETPs include age‑based, cap‑based and component‑based (taxed/untaxed/tax‑free) calculations, with a defined benefit income cap ($125,000 for 2025–26) and an untaxed plan cap (untaxed plan cap amount specified in Schedule 12) that alter withholding rates (Schedules 11–13).

Bottom line

This instrument is a technical, operational rulebook that translates withholding law into exact formulas and tables. It requires payers (employers, funds and payroll vendors) to apply multiple conditional rules and to update and test payroll/reporting systems. The practical burden is primarily administrative and technical: accurate selection of the correct schedule/scale, correct conversion of pay periods, handling of TFN and declaration flags, and aligning STP reporting.

Note: This table relates only to the provisions of this instrument as originally made. It will not be amended to deal with any later amendments of this instrument.

 (2) Any information in column 3 of the table is not part of this instrument. Information may be inserted in this column, or information in it may be edited, in any published version of this instrument.

3 Authority

  This instrument is made under section 15-25 in Schedule 1 to the TAA.

4 Definitions

  In this instrument: 

ATO means the Australian Taxation Office.

quick code means an alphanumeric code beginning with ‘QC’ that can be used to navigate to a specific page on the ATO website, by typing the code into the website search bar.

Note: The ATO website is www.ato.gov.au. This instrument contains quick code references to help people to navigate to specific pages on that website.

TAA means the Taxation Administration Act 1953.

5 Repeals

  The whole of the Taxation Administration (Withholding Schedules) Instrument 2025 is repealed.

6 Schedules

  The Schedules to this instrument contain withholding schedules that specify the amounts, formulas and procedures to be used for working out the amount to be withheld by an entity from a withholding payment covered by Subdivision 12-B, 12-C or 12-D in Schedule 1 to the TAA. Each item in a Schedule has effect according to its terms.

7 Guide to Schedules

  The Schedules to this instrument deal with the matters specified in the following table and can be found on the ATO website using the corresponding quick code.

8 Guide to other relevant documents and links

  The Schedules to this instrument refer to other documents or links in italics that are specified in the following table and can be found on the ATO website using the corresponding quick code.

Schedule 1 – Statement of formulas for calculating amounts to be withheld

This schedule applies to withholding payments covered by Subdivisions 12-B (except sections 12-50 and 12-55), and 12-D of Schedule 1 to the TAA.

The amounts, formulas and procedures in this schedule were last updated on 1 July 2024.

About this schedule

Amounts to be withheld from payments made weekly, fortnightly, monthly and quarterly, as set out in the relevant PAYG withholding tax table at ato.gov.au/taxtables, can be calculated using the formulas and coefficients contained in this schedule.

Using this schedule

If you develop your own payroll or accounting software package, this schedule provides the formulas and coefficients you will need to calculate the amounts to be withheld from payments made on a weekly, fortnightly, monthly or quarterly basis.

Separate scales apply to:

• foreign residents
• employees who have claimed or not claimed the tax-free threshold
• employees claiming a full or half-exemption from the Medicare levy.

To assist employers who don't have a software package, our website ato.gov.au provides the following tools which are based on the formulas in this schedule:

• tax withheld calculator
• tax tables.

Payments covered include:

• salary, wages, allowances and leave loading paid to employees
• paid parental leave
• directors' fees
• salary and allowances paid to office holders (including members of parliament, statutory office holders, defence force members and police officers)
• payments to labour-hire workers
• payments to religious practitioners
• government pensions
• government education or training payments
• compensation, sickness or accident payments that are calculated at a periodical rate and made because a person is unable to work (unless the payment is made under an insurance policy to the policy owner).

Do not use this schedule for payments made to individuals employed under a working holiday makers visa. You must use Schedule 15 - Tax table for working holiday makers for all payments made to them, including lump sum payments.

Software

Payroll or accounting software written in accordance with the formulas in this schedule should be tested for accuracy against the 'Sample data' section in this schedule.

The results obtained when using the coefficients in this schedule may differ slightly from the sums of the amounts shown in the PAYG tax tables at ato.gov.au/taxtables. The differences result from the rounding of components. Withholding calculated using either method is accepted.

Other statements of formulas

Statements of formulas for other classes of payees are also available. These include:

• Schedule 8 - Statement of formulas for calculating study and training support loans components
• Schedule 2 - Tax table for individuals employed in the horticultural or shearing industry
• Schedule 3 - Tax table for actors, variety artists and other entertainers
• Schedule 9 - Tax table for seniors and pensioners
• Schedule 15 - Tax table for working holiday makers.

Coefficients for calculation of amounts to be withheld (withholding amounts) from weekly payments

Where the tax-free threshold is not claimed in Tax file number declaration – Scale 1

Where the employee claimed the tax-free threshold in Tax file number declaration – Scale 2

Foreign residents – Scale 3

Where a tax file number (TFN) was not provided by employee – Scale 4

Where the employee claimed the FULL exemption from Medicare levy in Medicare levy variation declaration – Scale 5

Where the employee claimed the HALF exemption from Medicare levy in Medicare levy variation declaration – Scale 6

Notes

1.         Scale 1 contains a negative value for one of the b coefficients. This is intentional.
2.         If you have 27 fortnightly, or 53 weekly pays in a financial year, refer to withholding additional amounts from employee earnings section.
3.         Scales 1, 2, 3, 5 and 6 may be applied only where employees have provided their TFN.
4.         For scale 4 no coefficients are necessary. To calculate withholding, apply the tax rate to earnings, ignoring any cents in earnings and in the withholding result.
5.         Scale 1 and 2 apply whether or not the employee is entitled to any leave loading.
6.         Tax offsets may be allowed only where scales 2, 5 or 6 are applied.
7.         Scale 1, 2, 4 and 6 incorporate the Medicare levy. Scale 4 incorporates the Medicare levy for residents only.
8.         For scale 2 no Medicare levy is payable by a person whose taxable income for the year is $26,000 ($500 per week) or less. Where the taxable income exceeds $26,000 but is less than $32,500 ($625 per week), the levy is shaded in at the rate of 10% of the excess over $26,000. Where a person’s taxable income is $32,501 ($625 per week) or more, Medicare is levied at the rate of 2% of total taxable income.
9.         The Medicare levy is also shaded in for scale 6. The Medicare levy parameters for scales 2 and 6 are as follows:

Medicare levy parameters

Using a formula

Overview

The formulas comprise linear equations of the form y = ax − b, where:

• y is the weekly withholding amount expressed in dollars
• x is the number of whole dollars in the weekly earnings plus 99 cents
• a and b are the values of the coefficients for each set of formulas for each range of weekly earnings (or, in the case of fortnightly, monthly or quarterly earnings, the weekly equivalent of these amounts – see 'Working out the weekly earnings').

The formulas relate only to the calculation of withholding amounts before any tax offsets and Medicare levy adjustments are allowed. For instructions on the treatment of tax offsets and Medicare levy adjustments, refer to the sections on 'Tax offsets' and 'Medicare levy adjustment' in this schedule.

Sample data to verify that the software program is calculating the correct withholding amounts and Medicare levy adjustments has been provided in this schedule.

Withholding amounts calculated using these formulas may vary slightly to those calculated using the method set out in the footnote to the appropriate PAYG withholding tax table at ato.gov.au/taxtables. This applies if earnings exceed $3,400 weekly or $6,800 fortnightly.

Rounding of withholding amounts

Withholding amounts calculated as a result of applying the above formulas are rounded to the nearest dollar. Values ending in 50 cents are rounded to the next higher dollar. Do this rounding directly – that is, do not make a preliminary rounding to the nearest cent.

Use these rounding rules across all scales except scale 4 (where employee does not provide a TFN). For scale 4, cents are ignored when applying the tax rate to earnings and when withholding amounts are calculated.

When there are 53 pays in a financial year

In some years, you may have 53 pays instead of the usual 52. As this schedule is based on 52 pays, the extra pay may result in insufficient amounts being withheld. You should let your employees know when this occurs so if they are concerned about a shortfall in tax withheld, they can ask you to withhold the additional amount in the table below

This is an opening excerpt, not the complete document.