PAYG withholding, explained
Pay as you go (PAYG) withholding is the tax an employer holds back from wages and certain other payments, then sends to the ATO on the payee's behalf. If you pay employees, you almost certainly have to register. This guide covers when withholding applies, the registration rule, and the reporting cycle.
What PAYG withholding is
PAYG withholding is tax you hold back from payments to workers and some other payees, then pay to the ATO. It is not your tax; you are collecting it on the payee's behalf.
Under PAYG withholding, an employer takes a portion of certain payments and sends it to the ATO, so the payee meets their income tax liability gradually across the year rather than in one lump at tax time.[^1] You generally withhold from payments to employees and directors, from businesses that do not quote an ABN, and from contractors who have a voluntary withholding agreement with you.[^2]
The amount withheld is reported and paid to the ATO, and it shows up in the PAYG tax withheld section of your activity statement.[^1]
- Payments to employees and company directors.
- Payments to other businesses that do not quote their ABN.
- Payments to contractors under a voluntary withholding agreement.
- Certain payments to non-residents, such as interest, dividends, and royalties.
When you must register
You must register for PAYG withholding before the first payment you are required to withhold from, even if you do not end up withholding an amount.
The registration rule is strict and easy to miss. You must register for PAYG withholding before you are first required to make a payment subject to withholding.[^3] Registration is required even if the amount you withhold from a particular payment turns out to be nil.[^3]
If you have an active ABN you can add a PAYG withholding account through ATO online services, your registered agent, or compatible software. If you need to withhold but do not need an ABN, you can register a PAYG withholding account on its own.[^3]
How often you pay and report
Your withholding cycle depends on how much you withhold a year. Small withholders report and pay quarterly; medium withholders monthly; large withholders on a tight electronic timetable.
The ATO sets your cycle by your annual withholding amount. If you withhold $25,000 or less a year you are a small withholder and report and pay quarterly on your activity statement. Between $25,001 and $1 million a year you are a medium withholder and report and pay monthly. Above $1 million you are a large withholder and must pay electronically within days of each withholding event.[^4]
Separately, most employers report wages, withholding, and super information to the ATO each payday through Single Touch Payroll. Reporting through STP does not remove the need to report and pay the same withholding amounts on your activity statement.[^2]
A related 2026 change tightens the timetable on the super side. From 1 July 2026, Payday Super requires employers to pay super guarantee on each payday rather than quarterly, with the contribution received by the employee's fund within 7 business days of payday.[^5] The super guarantee rate is 12% for 2025-26.[^6] PAYG withholding and super are separate obligations, but they ride on the same pay run, so a business that keeps payroll current handles both more easily.
| Annual withholding | Withholder status | Report and pay |
|---|---|---|
| $25,000 or less | Small | Quarterly, on your BAS |
| $25,001 to $1 million | Medium | Monthly |
| More than $1 million | Large | Electronically, within 6 to 8 days of the withholding event |
Keeping withholding clean
Withholding errors surface at BAS time and at year-end. Keeping payroll and the activity statement reconciled through the period avoids a scramble and reduces correction risk.
Withholding sits across payroll and the BAS, so an error in one place tends to show up in the other. Reconciling wages, withheld amounts, and the activity statement as you go keeps the figures consistent and makes the work a registered agent reviews far quicker.
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