Most payroll mistakes don't come from bad intentions — they come from employers using the wrong table, or not realising the table changes depending on whether their employee claimed the tax-free threshold. The ATO's PAYG withholding tax tables for 2025-26 (covering 1 July 2025 to 30 June 2026) are more straightforward than they look once you know which one to reach for.
- The ATO publishes Schedule 1 withholding formulas in NAT 3539 — valid for the full 2025-26 tax year.
- Which table applies depends on pay frequency and whether the employee claimed the tax-free threshold on their TFN declaration.
- Withholding is calculated per pay period — never just divide an annual estimate by 26.
- Under Single Touch Payroll, the ATO sees your withholding figures in real time — accuracy every pay run matters.
What PAYG Withholding Tax Tables Actually Do
PAYG withholding is the system where employers deduct tax from wages before paying employees, then remit that amount to the ATO. The withholding tax tables tell you exactly how much to deduct each pay period so the employee's tax account stays square across the year.
The ATO publishes these as NAT 3539 — Statement of Formulas for Calculating Amounts to be Withheld. This document underpins Schedule 1 of the tax legislation. The companion Tax Withheld Calculator (NAT 1008) applies the same formulas automatically. For most small employers, the calculator delivers the right number without wrestling the algebra by hand.
The 2025-26 tax year runs 1 July 2025 to 30 June 2026. Always confirm you're using current-year formulas — the ATO updates them annually, and stale tables produce incorrect withholding.
ATO Schedule 1: Which Table Applies to Your Employee?
There isn't a separate table for every situation. NAT 3539 contains one set of formulas with different columns depending on your employee's circumstances. The mapping below shows the most common scenarios.
| Employee Type | Pay Frequency | ATO Reference |
|---|---|---|
| Resident employee, tax-free threshold claimed | Weekly, fortnightly or monthly | NAT 3539 — Scale 1 |
| Resident employee, no tax-free threshold | Weekly, fortnightly or monthly | NAT 3539 — Scale 2 |
| Foreign resident | Weekly, fortnightly or monthly | NAT 3539 — Scale 4 |
| Working holiday maker | Any frequency | NAT 3539 — Scale 6 |
| Daily / casual (irregular hours) | Daily earnings | NAT 3539 — daily earnings formula |
The scale depends on two things: the employee's residency status and what they ticked on their TFN declaration. No declaration before the first pay run means withholding at the highest rate — no tax-free threshold, no Medicare levy reduction — until the paperwork arrives.
Both the Medicare Levy and the Low Income Tax Offset are already baked into the Schedule 1 formulas — you don't add them separately. The formulas produce the net amount to withhold, not just the income tax component. This trips up plenty of employers. For more on how the threshold affects lower-paid staff, see how the Medicare Levy threshold works.
Don't reproduce the full ATO bracket structure manually — it changes annually and the formulas include coefficients. Go directly to ato.gov.au/rates/schedule-1 or use the ATO's online Tax Withheld Calculator for the authoritative 2025-26 figures.
How to Apply the Tables on a Payslip — Step by Step
Once set up correctly, the process repeats every pay run. Here's the workflow.
Withholding is calculated per pay period — do not simply divide an estimated annual tax liability by 26. The ATO formulas produce the correct per-period amount automatically, accounting for the progressive rate structure and offsets.
Worked example (indicative): Take Sophie, a full-time employee in Melbourne earning $1,400 per week gross, with the tax-free threshold claimed. Applying the 2025-26 NAT 3539 Scale 1 weekly formula, the indicative withholding is approximately $212 per week. Verify your own figures against the ATO calculator — this is illustrative only, and exact amounts depend on any applicable HECS-HELP debt or other adjustments. If your employees have study debt, check how HECS-HELP repayments show on a payslip.
“"Under Single Touch Payroll, the ATO sees your withholding figures in real time — not just at EOFY. Every pay run is a reported event."
The ATO's Schedule 1 formulas were updated for 2024-25 following the Stage 3 tax cuts, and carry forward into 2025-26. If you're still running payroll with pre-2024 withholding software or spreadsheets, your figures may be wrong — check the upcoming changes for 2026-27 while you're at it.
The Schedule 1 tables are structured — but they're also fiddly to apply manually, especially when employees have multiple jobs, HECS debt, or variable hours. A compliant payslip generator applies the current-year NAT 3539 formulas automatically, every pay run, without you needing to cross-check the ATO website each time.
Generate a Compliant Payslip Free →Frequently Asked Questions
Where do I find the official ATO PAYG withholding tax tables for 2025-26?
The ATO publishes the 2025-26 withholding formulas in NAT 3539 (Statement of Formulas for Calculating Amounts to be Withheld) and the Tax Withheld Calculator (NAT 1008), both available at ato.gov.au. Schedule 1 to the Income Tax Assessment Act 1997 is the legislative source underpinning the tables.
Does the tax-free threshold change which PAYG table I use?
Yes. If your employee has claimed the tax-free threshold on their TFN declaration, you apply Scale 1 (lower withholding). If they haven't claimed it — or are a foreign resident — higher withholding rates apply via a different scale. Always check the TFN declaration before processing the first pay run; you can't correct a missing declaration retroactively without a formal process.
What happens if I withhold the wrong PAYG amount?
Underwithholding can expose your business to ATO penalties and leave employees with a surprise tax bill at EOFY. Overwithholding means employees receive a refund, but they may reasonably complain about receiving less in each pay packet. Under Single Touch Payroll, the ATO receives your withholding data with every pay run — not just at year end — so errors don't stay hidden.
Can I use PayslipMate instead of manually calculating PAYG withholding?
Yes. PayslipMate applies the current NAT 3539 formulas automatically for each pay cycle, handles Scale 1 and Scale 2 withholding, and generates ATO-compliant payslips in seconds. It's particularly useful for small businesses without a dedicated payroll officer.
Bottom Line
Australia's PAYG withholding tables for 2025–26 determine how much tax you deduct from every employee pay run. The key points to remember:
- Use the correct withholding scale based on the employee's TFN declaration (tax-free threshold claimed or not)
- Apply the current NAT 3539 formulas — not a prior-year table
- Report every pay run via Single Touch Payroll — the ATO sees errors in real time, not at EOFY
- Super, leave loading, and allowances each carry their own withholding rules — treat them separately
Getting withholding right protects your business from penalties and keeps your employees' tax position clean at year end.
Stop manually checking the PAYG tables every pay run
PayslipMate applies the 2025–26 NAT 3539 withholding formulas automatically and generates compliant Australian payslips in under a minute — free to start, no accounting software required.
Create Your First Payslip Free →Shawn Martinez, CPA
Senior Tax Accountant
Shawn Martinez is a Certified Public Accountant with over 12 years of experience in Australian taxation and payroll compliance. He specializes in PAYG withholding, superannuation regulations, and ATO compliance for small to medium businesses.
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