W2 — PAYG withholding¶

When you pay employees, you take an amount of tax out of their pay and send it to the Australian Taxation Office (ATO) on their behalf. Label W2 on your BAS is where you report the total of that tax for the period.

If W1 is the gross wages you paid, W2 is the slice of tax you held back from them.

In one line

Label W2 is the total tax you withheld from the payments at W1 and are sending to the ATO.

Why this matters¶

The tax you withhold is not your money — it is your employees' tax that you are holding and passing on to the ATO. W2 is how you tell the ATO how much that is for the period, and it feeds into what you owe on the BAS. Getting it right keeps you square with the ATO and keeps your employees' tax records accurate.

What you will learn¶

What label W2 on the BAS is
How W2 links to W1
How W2 is generally pre-filled from Single Touch Payroll

Understanding the concept¶

PAYG stands for pay as you go. Under PAYG withholding, an employer takes an amount of tax out of an employee's pay and sends it to the ATO. This goes towards the employee's tax for the year, so they are not left with a big bill at tax time.

W2 is the total of those withheld amounts for the period. The ATO explains that you include at W2 the total amount you withheld from the salaries, wages and other payments shown at W1. If you did not withhold anything, you leave the box blank.

That gives W1 and W2 a clear link:

W1 is the gross payments — the full amount before tax.
W2 is the tax withheld from those payments.

The two are not added together. W2 is a portion held back from the W1 amounts. Your employees receive the gross pay minus the tax, and the tax portion is what you report at W2 and send to the ATO.

Like W1, if you report payroll through Single Touch Payroll (STP) — the system for reporting payroll to the ATO each payday — the ATO uses those reports to pre-fill W2 on your activity statement. A later lesson covers pre-fill in more detail.

For accountants & bookkeepers

W2 is the period total of amounts withheld from the payments reported at W1. The ATO pre-fills both W1 and W2 on electronic activity statements from information reported through STP-enabled software, and the underlying amounts can be reviewed in the payroll report list in ATO online services. Where no amount was withheld, W2 is left blank rather than reported as zero.

Example¶

Jordan runs a small landscaping business with two employees, Sam and Priya. Over the quarter, Jordan pays gross wages totalling $33,000, which goes at W1.

From those wages, Jordan withheld tax of $4,200 in total across the period. That $4,200 is the figure for label W2 — the tax held back from the W1 payments.

So W1 shows the $33,000 gross, and W2 shows the $4,200 of tax withheld from it. The two are linked: W2 is the tax slice taken out of the W1 wages.

Because Jordan reports through Single Touch Payroll each payday, the ATO has already tallied these amounts, and W2 is generally pre-filled with $4,200 when Jordan opens the BAS.

Common mistakes¶

Adding W1 and W2 together — W2 is a portion of the W1 payments, not an extra amount.
Putting a gross wage figure at W2 instead of the tax that was withheld.
Typing 0 at W2 when nothing was withheld — the ATO says to leave the box blank instead.
Overwriting a correct pre-filled W2 figure with a number that does not match the payroll records.

How this works in myaccountant¶

In the app — myaccountant works out the PAYG withholding on each pay run and keeps a running total for the period. When you prepare your BAS, it brings that total through to label W2, so the tax withheld matches the payroll you have already run.

Key points¶

W2 is the total tax you withheld from the payments at W1.
The withheld tax is your employees' tax, which you send to the ATO.
W1 is the gross wages; W2 is the tax taken out of them.
W1 and W2 are not added together — W2 is a portion of W1.
If nothing was withheld, the ATO says to leave W2 blank.
For STP-reporting employers, W2 is generally pre-filled by the ATO.

Learn next¶

General information only — not tax, super or financial advice.

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