||It has been suggested that this article be merged into Pay-as-you-earn tax. (Discuss) Proposed since August 2013.|
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 when the new tax system was introduced in July 2000. The new arrangements did not confine themselves to employment arrangements but also subsumed the Prescribed Payments System and the Reportable Payments System.
Pay-as-you-go is the Australian taxation system for withholding taxation from employees, and other payees, in their regular payments from employers, and other payers, for example superannuation funds. It is used to collect income tax, Higher Education Loan Program repayments and Medicare payments.
The system calculates an annual income on the basis of a weekly or fortnightly payment. The appropriate level of taxes and payments are then withheld and passed on to the Australian Taxation Office (ATO). For employees with only one job, the level of taxation at the end of 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.
If an employee received payments during the year, they should receive a pay-as-you-go (PAYG) payment summary from their employer. The payment summary will show the total payments you received and total amounts withheld for the financial year. Payments may include income earned from part-time or casual work. PAYG contributions are calculated based on the Australian Tax Office's pay-as-you-go (PAYG) schedules.
The PAYG payment summary will include all of the following:
- the gross income from that payer
- the total tax withheld
- the payer's Australian Business Number or withholding payer number (WPN).
One needs the information on one's PAYG payment summary to complete the tax return.
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.