The ATO formula starts with a weekly equivalent

Schedule 1 expresses ordinary withholding as a weekly linear equation, y = a × x − b. The value x is whole-dollar weekly earnings plus 99 cents. The coefficients a and b change at published earnings thresholds. The resulting weekly withholding is rounded directly to the nearest dollar, with 50 cents rounded up.

1. Normalise earnings.
   Convert the selected pay frequency into the Schedule 1 weekly equivalent.
2. Select the scale.
   Use Scale 2 when the threshold is claimed or Scale 1 when it is not.
3. Apply and round.
   Calculate a × x − b and round the weekly result to a dollar.
4. Return to the pay period.
   Multiply for fortnightly or monthly pay, then apply declared offsets and extra withholding.

This sequence matters. Simply multiplying monthly earnings by 12, calculating annual income tax and dividing by 12 can differ because the withholding schedule has its own coefficient bands and rounding. The ATO accepts calculations made using the formula even when they differ slightly from printed lookup tables because of component rounding.

Default fortnightly example

Gross fortnightly earnings of $2,000 produce a weekly equivalent of $1,000.99. With the tax-free threshold claimed, this falls in the 2026 Scale 2 band below $1,282, with a coefficient of 0.3227 and subtraction value of 185.1935. The weekly formula produces about $137.83, rounded to $138. Fortnightly withholding is $276, leaving $1,724 before other deductions.

The preview annualises this to $52,000 gross and $7,176 withholding over 26 pays. Those annual figures are an illustration that assumes every pay is identical. They are not an end-of-year tax return estimate.

Claiming the tax-free threshold changes the payroll scale

An Australian resident employee generally claims the tax-free threshold from one payer at a time. Scale 2 incorporates the threshold and ordinary Medicare levy settings. Where it is not claimed, Scale 1 begins withholding from lower earnings. The difference is designed to reduce an end-of-year shortfall when income comes from more than one job.

Using the default $2,000 fortnightly pay without claiming the threshold selects Scale 1. The weekly equivalent remains $1,000.99, but the coefficient band produces $249 weekly and $498 fortnightly withholding. That is $222 more than Scale 2 for this example. It does not mean the second job has a separate final tax rate; all taxable income is combined on the annual return.

The page accepts only the two common resident scales. It does not calculate the foreign-resident scale, no-TFN rate, Medicare full or half exemption scales, working holiday maker table or seniors and pensioners schedule. Select the correct official tool when one of those circumstances applies.

Withholding is a credit, not the final liability

PAYG amounts are remitted during the year and credited on assessment. The return calculates actual income tax, Medicare levy, offsets and other liabilities from the whole year. Irregular pay, deductions, investment income, private health insurance, spouse circumstances and study loans can make final tax differ from annualised withholding.

Declared offsets and extra withholding work in opposite directions

When a valid annual tax-offset amount is declared to a payer under Scale 2, Schedule 1 reduces ordinary withholding by 1.9% of that amount weekly, 3.8% fortnightly or 8.3% monthly, rounded to the nearest dollar. The reduction cannot make formula withholding negative. The input is not a place to enter work deductions or the Low Income Tax Offset; only use an amount that belongs on the relevant withholding declaration.

Extra withholding is added after the formula reduction. An employee can request an additional fixed amount to help cover income without withholding or a predictable shortfall. This page does not decide whether that amount is sufficient. A PAYG withholding variation can produce a more tailored rate in eligible circumstances.

Reconcile the preview with a real payslip

A payslip should identify the pay period, gross and net amounts, deductions and applicable rate information. Compare gross earnings before tax with the input here. If the payroll includes allowances, overtime, leave loading or a bonus, find out whether each component uses the ordinary schedule or a separate method.

Payroll software may differ by a dollar because of accepted rounding, prior-period adjustments or a declaration recorded in the employer’s system. A larger difference can indicate a different tax-free-threshold setting, study-loan component, Medicare variation, extra withholding request or payment classification. Check the employee’s TFN declaration and withholding declaration before assuming the software is wrong.

The annualised output multiplies one pay by 52, 26 or 12. It is useful for scale, but a financial year can contain 53 weekly or 27 fortnightly pays depending on the pay calendar. Schedule 1 notes that an extra pay can create insufficient annual withholding and provides optional additional amounts for relevant weekly and fortnightly income bands.

Cents are treated differently at different stages

The schedule deliberately ignores cents when creating weekly-equivalent earnings, then adds 99 cents before applying the coefficient. Monthly pay ending in 33 cents receives a one-cent adjustment before conversion. The formula result is rounded directly to the nearest dollar without first rounding to cents. These details can look odd beside normal payroll arithmetic, but changing their order can move the result by a dollar around a coefficient threshold. Enter the actual gross pay, including cents, and let the page apply the published sequence.

Use the effective percentage carefully

The effective withholding percentage is total PAYG withheld divided by the current gross pay. It is not the employee’s marginal tax rate. Progressive tax brackets, the tax-free threshold and Medicare shading make the average payroll percentage different from the rate applying to the next dollar of annual taxable income.

Save the pay frequency, threshold selection, offset declaration and extra amount with the result. The coefficients on this page apply to payments from 1 July 2026. A prior-year pay should be checked with the prior schedule, and future payments should be checked when the ATO publishes a replacement.