What Are PAYG Instalments?
PAYG instalments are periodic prepayments towards your expected income tax liability. If you’re self-employed or run a business or have an investment income, the ATO requires you to pay for these instalments if certain conditions are meet. The Australian Taxation Office (ATO) uses this system to help taxpayers manage their income tax obligations throughout the financial year, rather than facing a large tax bill at the end.
You’ll be required to pay PAYG instalments if you meet all of the following conditions:
- Your instalment income from the last financial year was $4,000 or more.
- Your tax liability from the previous financial year was more than $1,000.
- Your estimated tax bill for the current financial year is $500 or more (as determined by the ATO).
Note: The estimated tax bill is calculated by the ATO, not by you. You can’t simply declare an estimated tax of $0 to avoid paying instalments.
How Are PAYG Instalments Calculated?
PAYG instalments are not an additional tax but rather advance payments towards your end-of-year tax bill. The amount you pay is typically based on your income from the previous financial year.
For those with irregular earnings, this can be a challenge. If you had an exceptionally high-income year, your instalments might be higher than your actual liability for the current year. But don’t worry—there are ways to adjust your instalments if necessary. A tax accountant or tax agent who provides tax return services can guide you through the process to adjust you instalments.
When Are PAYG Instalments Due?
PAYG instalments are generally due 28 days after the end of each quarter. However, the exact schedule depends on your tax situation and how often the ATO requires you to lodge payments.
The ATO will notify you via mail or myGov if you’re required to make PAYG instalments. The notice will specify:
- How often you need to pay (quarterly, biannually, or annually).
- How much you need to pay.
Most taxpayers pay PAYG instalments quarterly, but some may be allowed to pay biannually or annually. If you are registered for GST, you can report and pay your PAYG instalments through your Business Activity Statement (BAS). If not, the ATO will issue a separate instalment notice each quarter. The tax accountants of tax agent at the time of providing tax return service can help you through paying PAYG instalment and advice you if any variation is needed.
Adjusting Your PAYG Instalments
If your income fluctuates or you expect to earn significantly less than the previous year, you can vary your PAYG instalments. This means adjusting your payments to reflect your expected tax bill more accurately. Seeking advice from tax accountants or tax professionals is advisable to adjust your PAYG instalment.
FAQ
Q: How do I know if I have to pay PAYG instalments?
A: The ATO will notify you via mail or through your myGov account if you are required to make PAYG instalments.
Q: How often do I need to pay PAYG instalments?
A: Most taxpayers pay quarterly, but some may be allowed to pay biannually or annually. The ATO will specify your payment schedule.
Q: Can I adjust my PAYG instalments?
A: Yes, you can vary your PAYG instalments if you expect to earn less than the previous year.
Q: Are PAYG instalments an extra tax?
A: No, PAYG instalments are prepayments towards your income tax. They help spread out your tax bill over the year instead of facing a large lump sum at tax time.
Q: What if I overpay my PAYG instalments?
A: If you overpay, the extra amount will be credited towards your final tax bill, and you may receive a refund when you lodge your tax return.
Conclusion
PAYG instalments help taxpayers manage their income tax by spreading payments throughout the year, reducing the risk of a large tax bill at the end. Understanding how they work, when they are due, and how to adjust them if needed can make tax time much easier. Staying informed and seeking tax professional advice, when necessary, ensures compliance with ATO requirements. By keeping up with your PAYG instalments, you can maintain better cash flow and financial stability throughout the year.
If you want to adjust your PAYG Instalments, our experienced Tax Agent. Tax Accountant of Tax Advisor is just a call away to assist with your PAYG matter and tax return service .
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