PAYG Withholding Tax Tables 2026-27 Australia: What Changed on 1 July?

• The second marginal tax bracket (income $18,201 to $45,000) will be cut from 16% to 15%, increasing take-home pay for many.
• This change could mean up to an extra $268 per year in your pocket.
• Study and training loan (HECS) repayment thresholds have been adjusted for indexation.
• Employers *must* update their payroll systems before the first pay run on or after 1 July 2026.
• The $18,200 tax-free threshold remains unchanged.

For incomes between $18,201 and $45,000, the marginal tax rate has been cut from 16% to 15%. This means for every dollar earned in that bracket, you'll pay one cent less in tax. While it might sound small, it adds up, potentially saving employees up to $268 per year.

Beyond income tax, the government also adjusts repayment thresholds for study and training loans, like HECS-HELP. This means the income level when you start repaying your loan, and how quickly you repay it, also changes yearly. You can find more detail about how these appear on your payslip on our HECS-HELP repayments payslip guide.

Here's how the full resident PAYG tax brackets compare for 2026-27 and the previous year:

On your payslip, this change will mean a slightly lower "PAYG Withholding" or "Income Tax" figure. For instance, if you earn $40,000 annually, you'll see a small but consistent increase in your net pay. To see how these numbers appear, check out our guide on how PAYG withholding appears on a payslip.

Consider Maria, a retail worker in Perth (a composite of clients we see). She earns $900 per week. With the previous 16% rate on income over $18,200, her weekly PAYG was higher. From 1 July, her payroll system will apply the 15% rate to the portion of her income in that bracket, giving her a few extra dollars each week. Over a year, that adds up.

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"Every dollar less in PAYG withholding means more immediate cash in your pocket. It's a direct benefit you'll feel with every pay cycle."

It's important to remember that the tax-free threshold of $18,200 per annum remains unchanged. This means the first $18,200 you earn is still not subject to income tax.

Did You Know? Australia's PAYG system helps prevent large tax bills at the end of the financial year. The regular withholding makes tax management smoother for both individuals and the government.

Employer Responsibilities: Updating Payroll for the 2026-27 Tax Year

For employers, 1 July is always a crucial date. This year is no different. You must update your payroll software and systems to include the new PAYG withholding tax tables for the first pay run on or after 1 July 2026. If you don't, you'll be holding back the wrong amount, which could lead to compliance problems with the ATO and incorrect net pay for your employees.

The official ATO tax tables (NAT 1005 Weekly, NAT 1006 Fortnightly, NAT 1007 Monthly) are the official source. Most modern payroll software should automatically push these updates. Still, it's always wise to double-check.

If you're using Single Touch Payroll (STP), these updates flow through automatically. You don't need to do anything extra for STP itself, as long as your payroll software is updated correctly. We have a comprehensive guide on Single Touch Payroll for small businesses in Australia if you need a refresher.

Key Takeaway for Employers: Confirm your payroll system has the 2026-27 PAYG tax tables loaded and tested *before* your first July payroll. It’s a mandatory step for compliance and employee satisfaction.

Ensuring accurate payslips isn't just about compliance; it's about trust and transparency with your team. Incorrect withholding can cause financial hardship for your employees and lead to significant compliance issues and penalties from the ATO for your business. Accurate and timely payroll updates are not just good practice; they are mandatory for maintaining employee trust and legal compliance.

FAQs about PAYG Withholding for the 2026-27 Tax Year

What is PAYG Withholding?

PAYG (Pay As You Go) Withholding is Australia's system for employers to deduct tax from payments made to employees, contractors, and other payees throughout the financial year. These deductions are then remitted to the Australian Taxation Office (ATO), ensuring that individuals pay their income tax progressively rather than as a large lump sum at year-end. It simplifies tax management for both individuals and the government.

Why is it crucial for employers to update payroll software by 1 July 2026?

Updating your payroll software with the new 2026-27 PAYG tax tables by 1 July 2026 is critical because it ensures you deduct the correct amount of tax from your employees' pay. Incorrect withholding can result in employees either paying too much tax (leading to financial strain and dissatisfaction) or too little (resulting in a tax debt for them at year-end). For employers, non-compliance can lead to ATO penalties and reputational damage.

What happens if I don't update my payroll software in time?

If your payroll software isn't updated with the new tax tables, you will continue to withhold tax at the old 2025-26 rates. This means your employees' net pay will be incorrect, and your remittances to the ATO will be inaccurate. The ATO can impose penalties for incorrect withholding and non-compliance. You will also likely need to make adjustments to correct past pays, which can be administratively burdensome and frustrating for employees.

How can I confirm my payroll system has the correct 2026-27 PAYG tax tables?

Most modern payroll software automatically updates tax tables. However, it's best practice to double-check. You can usually find a version or update history within your software's settings. Cross-reference this with official ATO publications (like NAT 1005, 1006, 1007) available on the ATO website shortly before 1 July. If you're unsure, contact your payroll software provider's support team or your tax professional.

The Bottom Line for 2026-27: The transition to the 2026-27 tax year demands proactive attention from Australian employers. Ensuring your payroll systems are updated with the latest PAYG withholding tax tables before 1 July 2026 is non-negotiable. This mandatory step prevents compliance headaches with the ATO, safeguards your business from potential penalties, and crucially, maintains accuracy and trust with your employees by ensuring their payslips reflect the correct tax deductions. Don't leave it to chance – verify your systems are ready well in advance.

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