What New South Wales Businesses Need to Know About Payroll Tax

Payroll tax is a state-based tax levied on wages paid by employers when their total wages exceed a set threshold. Unlike income tax, which is paid by individuals on their earnings, payroll tax is the responsibility of employers. Each Australian state and territory has its own tax brackets, rates, and thresholds.

One of the most important aspects of payroll tax is the tax-free threshold. In NSW, businesses are only required to pay payroll tax once their total taxable wages exceed a specified amount. For the 2024–25 financial year, the payroll tax rate is 5.45% with an annual tax-free threshold of $1.2 million.

How to Determine If Your Business Needs to Pay Payroll Tax

1. Calculate your total taxable wages, including salaries, bonuses, allowances, and superannuation.
2. Compare your total wages against the NSW tax-free threshold.
3. If your wages exceed the threshold, you must register for payroll tax with Revenue NSW.

If your business exceeds the threshold, payroll tax applies at a rate of 5.45% on wages above the tax-free amount. This differs from the Australia tax rate system for individuals, where tax brackets determine the percentage of income tax applied to earnings.

Example Calculation

If your business pays $1.5 million in taxable wages in NSW only:

• The first $1.2 million is tax-free.
• The remaining $300,000 is taxed at 5.45%.
• Your payroll tax liability = $300,000 x 5.45% = $16,350.
  

How Payroll Tax Differs from Income Tax

Payroll tax applies to businesses, whereas income tax is paid by employees based on their earnings. Businesses must deduct income tax from employees' wages through PAYG (Pay As You Go) withholding, whereas payroll tax is a separate employer obligation.

Avoiding Payroll Tax Penalties

Failing to comply with payroll tax obligations can result in penalties and interest charges. To stay compliant:

• Track Your Wages: Regularly review your total payroll to monitor when you might exceed the tax-free threshold.
• Register on Time: If you exceed the threshold, register with Revenue NSW promptly.
• Meet Lodgement Deadlines: Submit payroll tax returns and payments on time to avoid penalties.
• Seek Professional Advice: A tax professional or small business bookkeeper can help you navigate payroll tax complexities and ensure compliance.

How Profit Services Can Help

Managing payroll tax can be challenging, but you don’t have to do it alone. Profit Services provides expert bookkeeping and tax compliance support to help NSW businesses stay on top of their obligations.

Contact us today to ensure your payroll tax is managed efficiently and compliantly!