What is payroll tax?
Payroll tax is a self-assessed tax on the wages that employers pay to their employees when the total wages are more than a certain threshold.
Payroll tax is a state and territory-based tax that is imposed on the wages a business pays to its employees. It is not a federal tax and is governed by individual state and territory revenue offices. The tax is designed to fund various state services and infrastructure, such as health, education, and public transport.
How to check if you need to register for payroll tax?
Whether or not your business needs to register for payroll tax depends on the specific regulations of the state in which you operate. What you should do is monitor the wage levels and then register for payroll tax within the specific period regulated by the state. You must register for payroll tax if the monthly wage bill during any month exceeds the threshold amount. However, thresholds and exemptions can vary among states.
How much is payroll tax?
The payroll tax rates and thresholds differ across states, making it imperative to consult the relevant revenue office for precise information. The rates often increase as your taxable wages exceed certain thresholds. Some states also offer rebates or exemptions for specific industries or employment arrangements. Here is the summary of Rates & Thresholds from 1st July, 2023 to 30th June, 2024:
| State | Rate | Annual Threshold | Monthly Threshold |
| NSW | 5.45% | $1.2 million | |
| QLD | 4.75% to 4.95% | $1.3 million | $108,333 |
| SA | 0% to 4.95% | $1.5 million | |
| TAS | 0% to 6.1% | $1.25 million &
$2.0 million |
|
| WA | 5.5% | $1 million &
$7.5 million |
$83,333 |
| VIC | 1.2125% to 4.85% | $700 thousand | $58,333 |
| ACT | 6.85% | $2 million | $166,666.66 |
| NT | 5.5% | $1.5 million | $125,000 |
*For more details, please refer to the latest regulation of each state.
How payroll tax works?
Payroll tax is typically paid by employers on a monthly or quarterly basis, depending on the state or territory requirements. It’s calculated on the total wages you pay each month. The tax is imposed on the employer, not the employee. Employers are responsible for withholding the appropriate amount from their employees’ wages and remitting it to the relevant revenue office.
Not all businesses have to pay payroll tax. You pay when your total wages are over the tax-free threshold for the relevant state or territory. If your total wage is under the maximum threshold for your state or territory, you do not have to pay.
How to calculate payroll tax?
Calculating payroll tax involves several steps:
- Determine taxable wages
This includes all cash wages, salary, bonuses, commissions, and other benefits provided to employees. Non-cash items, such as fringe benefits, may also be included.
- Apply exemptions and deductions
Some states provide exemptions or deductions for certain wages or industries. Be sure to take advantage of these where applicable.
- Calculate taxable amount
Subtract the exemptions and deductions from the total taxable wages to arrive at the taxable amount.
- Check thresholds and rates
Refer to the relevant state to find the applicable tax rate and threshold for your taxable amount.
- Calculate tax payable
Multiply the taxable amount by the tax rate to determine the payroll tax payable.
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