What is payroll tax and what changes are coming our way?

What is payroll tax? Australia and VIC guide to who pays, how it’s calculated, 2024–25 changes, and lodging via PTX Express (Payroll Tax Express). Out of all the taxes that Australian businesses have to keep track of, … payroll tax is a particularly pesky one. It’s something that trips a lot of people up, and we get frequent questions about it. Here’s what you need to know.

Payroll tax is a state tax levied on wages paid by an employer (or a group of employers) that exceeds the threshold amount. Let’s break that up a bit…

The definition of wages under payroll tax legislation has a broader definition than what most employers are used to. This definition includes wages, superannuation, bonuses, commissions, leave and leave loading, and payments made to certain contractors. Payroll tax is self-assessed and lodged by the employer or their representative.

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Out of all the taxes that Australian businesses have to keep track of… payroll tax is a particularly pesky one. It’s something that trips a lot of people up, and we get frequent questions about it. Here’s what you need to know.

Top Highlights

What Is Payroll Tax and Who Needs to Pay It?

In a nutshell, payroll tax is a state-based tax that kicks in when your total wages cross a certain threshold, which varies depending on where you’re operating in Australia. And it’s not just about salaries, superannuation, bonuses, commissions, paid leave, and even some contractor payments are all part of the mix. It’s a self-assessed tax, meaning it’s up to you (or your trusted advisor) to keep track and ensure everything is lodged correctly.​

Who pays payroll tax?

Businesses whose total taxable wages exceed their state or territory’s threshold

Applies to employers or groups of employers

Here are the payroll tax thresholds for each state in Australia for the 2024/2025 financial year:

(Update: Last updated on: 23/02/2025 Source: https://www.payrolltax.gov.au/ )

How is payroll tax calculated?

Payroll tax rates in Victoria aren’t exactly one-size-fits-all, they depend on where your business is located and how much you’re paying in wages. On top of the standard rate, there are a couple of surcharges for larger employers, so it’s worth knowing exactly where you stand. Here’s a breakdown:

Victorian Payroll Tax Rates & Surcharges

What happens if I pay it late or not at all?

If you are not registered, but are required to be, the State Revenue Office (SRO) may open an investigation to assist with their determination of your eligibility. If it is deemed that you should be registered, but have failed to do so, SRO will issue interest and penalties on top of any outstanding payroll tax liability. They will also charge interest on any late payments not made by the due dates. So the message here is… don’t pay it late, and don’t miss the payment altogether. It’s a very costly mistake.

Tip: Use automated payroll tax software to stay compliant and on schedule.

How do I pay payroll tax?

Paying payroll tax doesn’t have to be a headache, once you’re registered, the process is pretty straightforward. You’ve got two options for how often you lodge and pay: monthly or annually. If you’re going the monthly route, just make sure everything’s squared away by the 7th of each month to avoid penalties. Here’s how it all works:

• Lodgment Frequency:
  • Monthly: Due by the 7th of each month
  • Annually: Optional if eligible and registered accordingly
• Lodgment Portal:
  • Lodgments are made via the PTX Express system on the State Revenue Office (SRO) website
  • After submitting, you’ll receive a payment slip and reference number
• Payment Methods:
  • BPay
  • Electronic Funds Transfer (EFT) using your issued reference number
• Tax Deduction:
  • Payroll tax is considered a business expense
  • It’s tax-deductible and should be included in your annual business tax return

Pro Tip: Want it off your plate entirely? We can handle the whole process for you, from lodgment to payment.

What changes are happening to payroll tax and when?

The Victorian payroll tax free threshold is increasing from $700k to $900k from 1st July 2024 and from $900k to $1m from 1st July 2025. A business with taxable wages above $5m will see the introduction of the “phase out” of the payroll tax free threshold and will result in an additional payroll tax liability of $43,650 for the year ending 30 June 2025 and an additional payroll tax liability of $48,500 for the year ending 30 June 2026.

We’re not under the illusion that this is a particularly interesting topic… but it’s one that business owners absolutely must know about. We’ll leave it there, but please contact us if you should be paying payroll tax and need a hand with it.

FAQs

Does the ATO administer payroll tax?

No, payroll tax is managed by state revenue offices, not the ATO. It’s important to understand the thresholds and rules for your state. If you’re unsure, our accountants in Melbourne CBD can walk you through the process.

Is payroll tax the same as PAYG withholding?

Not at all. Payroll tax is a state-based tax on total wages, while PAYG withholding is a federal tax where employers withhold income tax on behalf of employees. Our Accountants in Cremorne can help ensure you stay compliant with both.

Are payroll tax payments tax-deductible?

Yes, payroll tax is a legitimate business expense and is tax-deductible. It should be reported in your annual return. If you use a small business bookkeeping service, this can be automatically tracked and categorised for you.

Can I request a remission for a late payroll tax payment?

Yes. If you’ve missed a payment due to illness or a tech issue, you can submit a remission request through your state revenue portal. Need help crafting a solid case? Our Xero accountants can assist with the paperwork and submission.

When do I need to lodge payroll tax?

Most employers lodge monthly by the 7th, though annual lodgement is available to some. Missing deadlines can lead to penalties, so consider handing this over to our Accountants in Narre Warren for peace of mind.

How is payroll tax calculated in Victoria?

In Victoria, the general rate is 4.85%, with surcharges for employers over $10M in wages. Regional employers benefit from a reduced rate. Our VCFO services can help you manage payroll forecasting and obligations year-round.

Can payroll tax be automated with accounting software?

Absolutely. With the right setup in Xero or other platforms, you can automate lodgement prep and record-keeping. Our expert Xero accountants can help you streamline the process.

What if I grow and suddenly exceed the payroll tax threshold?

Growing businesses often cross state thresholds unexpectedly. Our financial planning services can help you prepare for scaling and avoid sudden tax shocks. We’ll also review structures to support sustainable growth.

Can payroll tax affect my ability to apply for a mortgage or business loan?

Yes. Lenders often look at your financial obligations, including payroll tax, when assessing your risk. Working with our mortgage broker ensures you position your finances correctly when applying for loans.