In instances where employees have an accumulated HELP debt, sometimes it is helpful to know exactly how the system breaks the PAYG down. The first thing that people usually do is calculate PAYG and HELP separately - which is where most of the questions come from, because with the ATO, they provide a tax scale to work them out together.
So first thing you need to do is look up the HELP + PAYG tax scale which is here:
The other thing you need is the statement of formulas here:
Now in the PDF, it has a formula for working out tax, which is easy enough:
y = ax – b
So, x is the employees weekly earnings, and a and b are the numbers in the spreadsheet
Now if an employee is using monthly earnings, you need to turn them into weekly earnings. To do this you need to:
Monthly – obtain the sum of the monthly earnings and the amount of any allowances subject to withholding (if the result is an amount ending in 33 cents, add one cent), multiply this amount by three and then divide by 13. Ignore any cents in the result and then add 99 cents:
So in an example case: $9,166.67 x 3 / 13 = 2115.385384615385
ignoring cents and add .99 = 2115
Now we take that number, look it up in the table above and put it into the formula:
2115.99 x .47 - 239.8654 = 754.6499
Rounding that figure, we're left with a weekly withholding figure of $755
Now we have to turn it back into a monthly figure.......
Monthly – work out the rounded weekly withholding amount applicable to the weekly equivalent of earnings, before any adjustment for tax offsets. Multiply this amount by 13, divide the product by three and round the result to the nearest dollar
So we have a total monthly withholding figure of $3272
Now where this gets tricky is that the weekly withholding amount includes the HELP amount. So to get the PAYG, we need to work out the HELP. HELP is just a straight % amount, so using the same approach above:
2115.99 x 8% = 169.2792
Which is $169 rounded.
So taking that back to a monthly figure:
169 x 13 / 3 = 732
Now the last part is to get the PAYG figure, which is the total withholding amount minus the HELP amount:
3272 - 732 = $2540
And that's how you get the PAYG figure.
The below reference is important to understand also....this comes from page 7 of this PDF https://www.ato.gov.au/uploadedFiles/Content/MEI/downloads/Schedule-1-Calculating-amounts-to-be-withheld-2017-18.pdf which says:
Software written in accordance with the formulas in this schedule should be tested for accuracy against the sample data provided on the following pages. The results obtained
when using the coefficients in this schedule may differ slightly from the amounts shown in the PAYG tax tables. The differences result from the rounding of components.
The key part is that last sentence - we're using the coefficients, rather than the tax tables, which is where the variance comes from and the ATO acknowledges this.
Hopefully this helps to understand how the system works out the PAYG when employees have a HELP debt.
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