Pay-as-you-go tax

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Pay as you go (PAYG) is a system for businesses and individuals to pay installments of their expected tax liability on their income from employment, business, or investment for the current income year. When used as an adjective, it is often spelled pay-as-you-go. It is similar to pay-as-you-earn (PAYE) tax, used in the United Kingdom, the Republic of Ireland and other countries.


In Australia, pay-as-you-go withholding arrangements replaced pay-as-you-earn arrangements in July 2000. The new arrangements covered payments from employment as well as under the Prescribed Payments system and the Reportable Payments system.

In Australia, the PAYG system is a withholding tax for employees and other payees, from regular payments made by employers and other payers, for example superannuation funds. It is used to collect by instalments income tax, HELP repayments, Medicare and other payments.

The system calculates an annual income on the basis of a weekly or fortnightly payment. Payments would include income earned from part-time or casual work. PAYG amounts to be withheld are determined based on the Australian Taxation Office (ATO) PAYG schedules.[1] The appropriate level of taxes and payments are then withheld and the withheld amounts are passed on to the ATO. For employees with only one job, the level of taxation for the year is close to the amount due, before deductions are applied. Discrepancies and deduction amounts are declared in the annual income tax return and will be part of the refund that follows after annual assessment or reduce the taxation debt that may be payable after assessment.

For an employee's primary job, the withholding tax rate is lower because of the existence of a tax-free threshold in Australia. All other work has tax withheld based on a rate that excludes the tax-free threshold.

PAYG summaries[edit]

Each employee who receives PAYG-type payments during a financial year would receive a PAYG payment summary from their employer at the end of the financial year. The PAYG payment summary will include:

  • the employee's details including the TFN
  • the gross income earned by the employee from that payer
  • the total PAYG amount withheld by the payer
  • the payer's Australian Business Number or withholding payer number (WPN).

The information on the PAYG payment summary is needed to enable the employee to complete his or her income tax return.

The payer must send to the ATO a copy of the PAYG payment summaries as well as an annual PAYG summary. This may be sent to the ATO electronically using Standard Business Reporting enabled software,[2] or it may be sent as a hard copy by mail. The total of the wages paid reported on the PAYG summary and the total amount withheld must agree with the totals as reported by the payer to the ATO on the Business Activity Statements (BASs) for the year. The ATO will use the information on the PAYG payment summary to match with the employee, using the employee's TFN.

United States[edit]

Main article: Withholding tax

The plan was developed by Beardsley Ruml, Bernard Baruch, and Milton Friedman in 1942. The government forgave taxes due March 15, 1942 for year 1941, and started withholding from paychecks. It is basically the plan currently followed by the United States federal government, where taxes are withheld from each paycheck and sent to the government, as opposed to paying annual taxes in one lump sum each year.


  1. ^ "ATO PAYG Schedules & Salary Calculation". Retrieved 7 July 2014. 
  2. ^ "SBR - Products available". Retrieved 20 September 2010.