Reporting the tax you withheld¶

When you pay wages, you hold back some tax and send it to the Australian Taxation Office (ATO) on your employees' behalf. On your Activity Statement, the total tax you held back goes at a label called W2.

W2 sits right next to W1, the label for the total wages you paid. Together they tell the ATO the two halves of the same story — what you paid out, and how much tax you kept back from it.

In one line

W2 is the total tax you held back from the wages at W1 and are sending to the ATO.

Why this matters¶

The tax at W2 is money you are holding on behalf of your employees. Reporting it correctly, and paying it across, is how the ATO knows each employee has had the right amount of tax set aside for the year. Get W2 right and everyone's figures line up at tax time.

What you will learn¶

What label W2 reports and how it relates to W1
Why W2 is usually pre-filled for you from your payroll reports
How finalising your payroll data at year end confirms the whole year's withholding

Understanding the concept¶

W1 is the total of the wages and other payments you made in the period. W2 is the total tax you withheld from those payments. So W1 is the gross amount you paid out, and W2 is the slice of it you held back for the ATO.

Most small businesses report their wages through Single Touch Payroll (STP). Each time you run payroll and lodge it, the ATO receives the wage and tax figures. Because of this, the ATO can generally pre-fill W1 and W2 on your electronic Activity Statement using what you have already reported through STP. You should still check the figures before you lodge — the pre-filled amounts come from what your software has sent.

At the end of the financial year, you make a finalisation declaration through STP. This tells the ATO you have fully reported the year's wages and withholding for each employee. That finalisation is what confirms the year's withholding and switches each employee's income statement to "Tax ready" in their ATO account.

For accountants & bookkeepers

W1 carries gross payments and W2 carries the amounts withheld from them. The ATO pre-fills W1 and W2 on the electronic Activity Statement from STP lodgements, but the pre-fill only reflects what has actually been reported through STP-enabled software — so an unlodged or late pay run report leaves the pre-fill short. The finalisation declaration (the "is this your final report for the year" indicator) is due by 14 July each year; finalised STP information can be amended for several years afterwards.

Example¶

Priya runs a small cafe with three staff. Across the quarter she pays them a total of $60,000 in wages, and she holds back $9,000 in tax from those wages to send to the ATO.

Because Priya lodges each pay run through STP, when she opens her Activity Statement the ATO has already pre-filled W1 with $60,000 and W2 with $9,000. She checks the two figures against her own payroll records, sees they match, and lodges. At year end she makes her STP finalisation declaration, which confirms the full year's wages and withholding for each of her three employees.

Common mistakes¶

Confusing the two labels — W1 is the wages you paid, W2 is the tax you held back.
Assuming the pre-filled figures must be correct — they only reflect what STP has received, so always check before lodging.
Forgetting the year-end STP finalisation — until you finalise, the year's withholding is not confirmed and employees' income statements are not "Tax ready".

How this works in myaccountant¶

In the app — when you finalise a pay run, myaccountant works out the tax withheld for each employee and lodges the wage and withholding figures through STP. The withheld amounts flow through to the tax-withheld figure you report, so W1 and W2 line up with the payroll you have actually run.

Key points¶

W2 is the total tax you withheld from the wages shown at W1.
W1 is the wages paid; W2 is the tax held back from them.
W2 is generally pre-filled from what you report through STP.
Always check the pre-filled figures before you lodge.
The year's withholding is confirmed when you finalise your STP data at year end.

Learn next¶

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

Did this answer your question?