If you work in Sydney, your employer removes tax from your pay before you receive it. This system is called PAYG (Pay As You Go), and it's how the Australian Taxation Office collects income tax throughout the year. Understanding how PAYG tax works and what's being deducted from your monthly pay is essential for managing your money and planning your finances.

PAYG tax deductions happen automatically. Your employer calculates how much tax you owe based on your income, tax file number (TFN), and the tax-free threshold, then removes that amount from each pay packet. For most workers in Sydney, this means you'll see a smaller amount in your bank account than your gross salary. The amount deducted depends on your income level, whether you have dependents, and whether you've claimed any tax offsets.

How much PAYG tax is deducted from your monthly pay?

The amount of PAYG tax deducted from your pay depends on several factors. The Australian Taxation Office publishes tax tables each financial year that employers use to calculate deductions. As of 2026, the tax-free threshold remains at AUD 18,200 per year. This means if you earn less than this amount, no tax should be deducted from your pay.

For those earning above the threshold, tax is calculated progressively. The rates are:

  • 18,201 to 45,000: 19% of the amount above 18,200
  • 45,001 to 120,000: 32.5% of the amount above 45,000, plus 4,942
  • 120,001 to 180,000: 37% of the amount above 120,000, plus 29,467
  • 180,001 and above: 45% of the amount above 180,000, plus 51,667

However, your actual monthly deduction is not simply your annual tax divided by 12. Your employer uses ATO tax tables that account for the frequency of your pay (weekly, fortnightly, or monthly). If you earn 50,000 per year and are paid monthly, your gross monthly pay is roughly 4,167. Your employer will deduct approximately 520 per month in tax, leaving you with around 3,647 after tax.

Your deduction also changes if you claim tax offsets. Common offsets include the Low Income Tax Offset (LITO), which reduces tax for those earning under 66,667 per year. If you have dependents or are studying part-time, you may qualify for additional offsets that lower your monthly deduction.

If you have multiple jobs or receive income from other sources (freelance work, rental income, investment dividends), your employer may not know about this. They'll calculate PAYG based only on what they pay you, which could mean you're under-taxed during the year and owe money at tax time.

Why does my PAYG deduction seem wrong or change?

Several reasons explain why your PAYG deduction might feel incorrect or fluctuate. First, check whether your employer has your correct tax file number and tax details. If your TFN is missing or wrong, your employer must apply the highest tax rate (45%) to your pay. This is called the maximum marginal rate, and it's temporary until you provide the correct TFN.

Second, your deduction changes if you claim tax offsets or if your circumstances change. If you recently turned 18, started studying, got married, or had a child, you may qualify for new offsets. You need to tell your employer about these changes by completing a new tax declaration form. Without this, they'll continue deducting tax at the previous rate.

Third, if you've changed jobs mid-year, your new employer may not know about your income from your previous employer. This can result in under-deduction if your combined income pushes you into a higher tax bracket. The ATO will sort this out at tax time, but you might owe money then.

Fourth, bonuses, overtime, or irregular payments can spike your deduction. If you receive a large bonus in one month, your employer calculates tax on that higher amount for that pay period. This is correct, but it means your take-home pay that month will be noticeably lower.

Finally, if you've claimed the wrong number of dependents or tax offsets on your tax declaration, your deduction will be incorrect. You can update this at any time by giving your employer a new declaration form.

How do I check if my PAYG deductions are correct?

The easiest way to verify your PAYG deductions is to use the ATO's online tax calculator or to review your payslip carefully each month. Your payslip shows your gross pay, PAYG tax deducted, and net pay. Compare the tax amount to the ATO's tax tables for your income level and pay frequency. If the deduction matches the table, it's correct.

You can also log into your ATO online account (myTax) to see your tax record. This shows your total income, tax paid, and any offsets claimed for the financial year to date. If you notice a discrepancy between what your payslip shows and what the ATO has recorded, contact your employer's payroll team immediately.

If you believe you've been over-taxed or under-taxed, you don't have to wait until tax time to fix it. You can contact the ATO directly on 13 28 61 (the ATO's general line) or visit ato.gov.au to update your tax details. If you've been significantly over-taxed, the ATO can issue a refund before the end of the financial year.

Keep all your payslips for the financial year. When you lodge your tax return (usually between July and October), you'll need to confirm your total income and tax paid. If your payslips don't match your employer's records, the ATO will ask for clarification.

What happens if I'm under-taxed or over-taxed during the year?

If you're under-taxed during the year, you'll owe money when you lodge your tax return. The ATO calculates your actual tax liability based on your total income and offsets, then compares it to what you've already paid. If you've paid less, you'll receive a bill. You can usually pay this in full or arrange a payment plan with the ATO.

If you're over-taxed, you'll receive a refund. Most workers in Sydney who are employed by a single employer and have no other income receive a refund at tax time because employers tend to deduct slightly more than necessary. The average refund is around 1,000 to 1,500, though this varies widely depending on your circumstances.

To avoid a large bill at tax time, you can ask your employer to increase your PAYG deduction if you know you'll have other income. Conversely, if you're consistently over-taxed, you can ask your employer to reduce your deduction by completing a variation form. The ATO website has templates for both scenarios.

If you're self-employed or have irregular income, you may need to pay tax instalments quarterly rather than relying on PAYG. The ATO will notify you if this applies to you.

Sources

For more information about PAYG tax and deductions, visit these official Australian resources:

Frequently Asked Questions

What is the tax-free threshold in Australia for 2026?

The tax-free threshold is AUD 18,200 per year. If you earn less than this amount, no income tax should be deducted from your pay.

Why is my PAYG deduction higher than I expected?

Your deduction may be higher if you have multiple jobs, received a bonus, or your employer doesn't have your correct tax file number. Check your payslip and tax declaration to confirm your details are correct.

Can I reduce my PAYG deductions if I'm over-taxed?

Yes, you can ask your employer to reduce your deduction by completing a variation form with the ATO. You'll need to show that you expect to be over-taxed for the year.

How do I check my PAYG tax record with the ATO?

Log into your ATO online account (myTax) to view your income, tax paid, and offsets for the current financial year. You can also call the ATO on 13 28 61 for assistance.

What happens if I don't provide my tax file number to my employer?

Your employer must deduct tax at the highest marginal rate (45%) until you provide your correct TFN. This is temporary and will be corrected once you give your TFN.

Will I get a refund if I've been over-taxed?

Yes, if you've paid more tax than you owe, you'll receive a refund when you lodge your tax return. Most employees receive a refund because employers deduct slightly more than necessary.

This is general information only. It is not legal, migration, financial, tax, medical, or professional advice. Always check official sources before acting.