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Home/Blog/Medicare & Other/What does tax withheld mean on your payslip in Australia?
Medicare & Other·30 June 2025·2 min read

What does tax withheld mean on your payslip in Australia?

Tax withheld is the income tax your employer deducts from your wages before paying you. Here is how to check it is correct.

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Quick answer

Tax withheld on your payslip is the income tax your employer deducts from your gross wages before paying you the net amount. It is the PAYG withholding collected on behalf of the ATO.

What is tax withheld on your payslip?

Every Australian payslip should show three key figures:

  • Gross pay: total earnings before any deductions
  • Tax withheld: amount deducted as PAYG withholding tax
  • Net pay: what actually goes into your bank account

The tax withheld is the amount your employer is paying to the ATO on your behalf as a prepayment of your annual tax liability. It is reconciled when you lodge your annual tax return.

How can you check the tax withheld is correct?

For working holiday makers with your TFN on file and the form correctly completed:

  • Divide the tax withheld figure by the gross pay figure
  • The result should be approximately 0.15 (15%)

Examples:

  • Gross pay $1,000 → tax withheld should be around $150
  • Gross pay $1,500 → tax withheld should be around $225
  • Gross pay $2,000 → tax withheld should be around $300

If the result is significantly different from 15%, something is wrong.

What can cause incorrect withholding?

Common reasons for the wrong rate being applied:

  • 45% withheld: Tax File Number Declaration form not yet received or processed
  • 30% withheld: Employer not registered as an employer of working holiday makers (uses the default foreign resident rate)
  • 19% or lower: Tax-free threshold incorrectly claimed (this will cause a tax debt at year-end)
  • No tax withheld: Cash-in-hand work or PAYG setup completely missed

If your payslip shows the wrong rate, get in touch with our team. We work out what was supposed to be withheld and recover any excess through your tax return.

What happens to the tax withheld?

The withheld amounts flow to the ATO:

  • Your employer collects tax withheld from each pay
  • They remit it to the ATO periodically (usually quarterly)
  • At year-end, they finalise the total reported as your income statement
  • Your tax return reconciles the total withheld against your actual liability
  • The difference is refunded or owed

Why you should keep your payslips

Save every payslip throughout the year:

  • Lets you cross-check your income statement at tax time
  • Resolves discrepancies between what was paid and what the ATO has on record
  • Documents super line items separately from tax
  • Supports any underpayment or tax claim
  • Useful if your employer's records are incomplete when we prepare your return

Most modern payroll systems email payslips automatically. Set up an email folder to keep them organised.

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