---
title: "What is payg withholding?"
description: "Payg Withholding explained in plain English: definition, how it works, an example, and how it appears in QuickBooks and Xero."
url: https://ledgerbpo.com/glossary/payg-withholding/
updated: 2026-09-11
publisher: LedgerBPO (SS Support Network LLC)
language: en-US
---

# What is payg withholding?

Glossary

PAYG withholding is the Australian system requiring employers to withhold tax from employee wages and certain payments to contractors, then remit that amount to the ATO and report it on the business activity statement or instalment activity statement for the period.

Updated September 2026

## How payg withholding works

Each pay run, an employer calculates tax to withhold from each employee's wages based on current ATO tax tables, their declared tax file number details and any study loan or Medicare levy adjustments that apply to that specific employee. This withheld amount is set aside as a liability on the books rather than paid out to the employee along with the rest of their wages for that period.

PAYG withholding amounts are reported to the ATO through Single Touch Payroll each pay run and totalled on the BAS or IAS for the reporting period, when the business remits what it has withheld to date across all employees. Errors in withholding calculations flow through to both employee take-home pay and the business's statutory obligations, so getting the tax tables and employee details right at setup matters a great deal.

## Example

An Australian retailer runs fortnightly payroll for six staff members across its two locations. Based on ATO tax tables, it withholds a combined $2,400 in PAYG tax from that fortnight's wages, reported to the ATO through Single Touch Payroll on payday itself, the same day wages are paid. That $2,400 becomes part of the PAYG withholding total on the business's next BAS, which it pays over to the ATO alongside its GST liability for the same period.

## PAYG Withholding in QuickBooks Online vs Xero

QuickBooks Online Payroll calculates PAYG withholding automatically from current ATO tax tables and reports it through Single Touch Payroll each pay run without manual work. Xero Payroll does the same, applying current tax tables and feeding withheld amounts directly into the BAS or IAS figures without any manual recalculation needed.

## Common mistakes

- Employee tax file number declarations are entered incorrectly at setup, causing PAYG withholding to be calculated at the wrong rate for that employee every pay run.
- Outdated ATO tax tables are used after an annual update, resulting in PAYG withholding amounts that no longer match current requirements.
- PAYG withholding reported through Single Touch Payroll is not reconciled against the amount actually remitted on the BAS, leaving a gap between the two figures.

## Why it matters

PAYG withholding affects both employee take-home pay and the business's own statutory obligations, so an error at setup flows through every pay run until it is caught. Because figures are reported to the ATO through Single Touch Payroll close to real time, mistakes reach the ATO's own systems quickly and are harder to unwind. For Australian employers, accurate withholding protects staff pay and keeps BAS or IAS figures reliable.

## Related terms

- [BAS](https://ledgerbpo.com/glossary/bas/)
- [Single Touch Payroll](https://ledgerbpo.com/glossary/single-touch-payroll/)
- [Payday Super](https://ledgerbpo.com/glossary/payday-super/)
- [All terms](https://ledgerbpo.com/glossary/)

## How LedgerBPO handles payg withholding

We reconcile PAYG withholding against payroll records each period and prepare the figures that feed your BAS or IAS workpapers, so your TPB-registered BAS agent has accurate numbers to review and lodge with the ATO each period.

[STP events and super reconciled every pay run](https://ledgerbpo.com/au/services/payroll-super/)

Next step

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Source: https://ledgerbpo.com/glossary/payg-withholding/ · Contact: https://ledgerbpo.com/contact/ · Full site map for agents: https://ledgerbpo.com/llms.txt