PAYG withholding on your activity statement¶

Each time you pay staff, you take an amount of tax out of their pay and hold onto it for the Australian Taxation Office (ATO). That amount does not stay with you. You report it, and pay it across, on your activity statement.

An activity statement is the form you send the ATO to report and pay certain amounts. Depending on your business it may be a BAS (business activity statement) or an IAS (instalment activity statement). Either way, the payroll tax you withheld shows up on it in two boxes, called labels.

In one line

The total pay you gave staff goes at label W1, and the total tax you held back from them goes at label W2 — that is how the withheld tax reaches the ATO.

Why this matters¶

The tax you take out of an employee's pay is not your money. You are holding it on the ATO's behalf. The activity statement is the moment you report how much you withheld and pay it over. Getting the two labels right means the ATO's record matches what you actually took out, so nothing is left owing or reported twice.

What you will learn¶

How the tax you withhold from pay reaches the ATO
What goes at label W1 and what goes at label W2
Why reporting these labels is how you pay the withheld tax across

Understanding the concept¶

PAYG withholding is the tax you take out of an employee's pay. PAYG stands for pay as you go. You hold that amount back each pay and later send it to the ATO.

The activity statement is where you report it. The ATO uses two labels:

Label W1 — total gross payments. This is the total pay you made to staff for the period, before tax was taken out. The ATO describes W1 as the total salary, wages and other payments you make from which you would normally withhold.
Label W2 — total amount withheld. This is the total tax you actually held back from the payments shown at W1.

So W1 is the "before tax" total you paid out, and W2 is the slice of it you kept aside for the ATO. When you lodge the activity statement, the W2 amount is what you pay across.

For accountants & bookkeepers

The ATO explains that W1 captures total gross payments subject to withholding — salary, wages, allowances and leave loading — and that all such payments are included even where no amount was actually withheld. W2 is the total withheld from the W1 amounts, and is left blank if nothing was withheld. Where the business reports through Single Touch Payroll, the ATO pre-fills W1 and W2 in its online services from the STP data already lodged, so the figures should be cross-checked against the payroll records rather than re-keyed.

Example¶

A small café pays its staff over a quarter. Across that quarter the total gross wages came to a certain amount, and the café held back tax from each pay along the way.

When the café prepares its activity statement, it puts the total gross wages at label W1 and the total tax it withheld at label W2. When the statement is lodged, the W2 amount is paid to the ATO. That single figure covers all the small amounts held back from each pay during the quarter.

Common mistakes¶

Putting the net (after-tax) pay at W1 — W1 is the gross amount, before tax was taken out.
Leaving W2 out because "it was only small amounts" — W2 is the total of every amount withheld.
Assuming the withheld tax is yours to keep — it is always paid across on the activity statement.
Trusting a pre-filled figure without checking it against your own payroll records.

How this works in myaccountant¶

In the app — myaccountant works out the PAYG withholding on every pay run. Those figures — the total gross payments and the total amount withheld — feed the W1 and W2 labels on your activity statement, so the payroll side and the statement stay in step without you re-typing the numbers.

Key points¶

The tax you withhold from pay belongs to the ATO — you report and pay it on your activity statement.
Label W1 is the total gross payments you made to staff.
Label W2 is the total tax you withheld from those payments.
When you lodge, the W2 amount is what you pay across to the ATO.
Always check the labels against your own payroll records before lodging.

Learn next¶

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

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