What is Withholding Tax?
If you employ people, you need to register for PAYG withholding.
It is your responsibility to withhold a specific amount from each payment when you pay:
- Employees
- Businesses
- Certain contractors
This withholding should be automatically sent to the ATO. This is to ensure nobody faces a large tax bill when they file their tax return.
If you are a partnership or a sole trader, you do not need to withhold from amounts you withdraw for personal use. This isn't considered a wage; while it should be listed in your tax income, it does not require tax withheld.
If you need to know how to calculate withholding tax, you can use the ATO's tables to calculate withholding. Once you have the correct withholding tax rate, there are reporting requirements.
Use the tax table to calculate the correct amount to withhold. When you withhold amounts from payments, you need to pay this tax withheld to the ATO. You need to report it on your activity statements and detail it on the annual report you lodge.
When do you need to pay the income tax withholding?
The due date depends on whether you are classified as a small withholder. A small withholder, someone who withholds under $25,000 a year, is required to pay quarterly. For a medium withholder, over $25,000 but under $1 million, they need to pay monthly withholding tax Australia. For withholders of over $1 million a year, the payment needs to be made within eight days of the tax withholding.
How do you pay the withholding to the ATO?
You can pay online or over the phone via credit or debit card. Thanks to Single Touch Payroll, a reliable payroll software like QuickBooks will automate the process and directly report and transmit tax withholding to the ATO on your behalf.
Your payroll software can also automatically report payment summaries after each pay cycle. You do need to provide the ATO with an annual payment summary, but again, QuickBooks makes it simple.
With Single Touch Payroll, you no longer need to provide employees with payment summaries to highlight their wages, deductions, and withholdings. This is accessible through the online portal for them to view as soon as they have been paid.
