What is Payroll Tax?

What is Payroll Tax

If you own a business that has employees you may have heard about payroll tax, and wondered what it is. For many very small businesses with 1 or 2 employees you may not yet have been required to pay it, and so may not be sure when you will need to. In the case where you are looking to expand your team over the next few years, it will be important for you to learn all you can about payroll tax. Such as, what threshold you will need to reach before you need to start paying it, how much the tax is, and how to register.

About payroll tax

First up, let’s go through what exactly payroll tax is. Essentially, the payroll tax is a state and territory tax that is assessed on the wages paid or payable by an employer to its employees. The tax is self-assessed and is only enacted when the total wages paid by an employer to their employees exceed a certain threshold.

As this tax is a state and territory run tax it will vary between states and territories. This means, that you will need to go by the threshold and tax rate of the state you are paying wages in.

Just like other taxes, returns are lodged, and payments made, at an agreed frequency with the correct revenue office in your state or territory. These frequencies can be monthly, quarterly, or annually.  

How to know if you need to register

From here we will be focusing on the state of Queensland. If you are looking for information on other states and territories, visit this website here.

You will be required to register for payroll tax when you cross a certain threshold. In Queensland that is $1.3 million a year in taxable wages paid. This equates to $25,000 a week or $108,333 per month. In some cases, even if you are below this threshold, you may still need to register for payroll tax, but you won’t be required to pay it yet.

In the case where you are a member of a group of employers, the threshold is calculated on the combined annual taxable wages of all group members. So, if you together reach above the $1.3 million you will be required to pay payroll tax.

What is the payroll tax rate in Queensland?

The payroll tax rate is divided into two different brackets. As of the time of writing the payroll tax rate is as follows:

  • For employers who pay $6.5 million or less in taxable wages the rate is 4.75%
  • For employers who pay more than $6.5 million in taxable wages the rate is 4.95%

If you are an employer in a regional town, you may be able to receive a 1% discount on the payroll tax rate up until 30 June 2023.

How to register for payroll tax

You must register for payroll tax within 7 days after the end of the month where your taxable wages paid equals $25,000 a week. To register for payroll tax, follow these steps:

  1. Create an OSR online account. This must be an individual account, not a generic company account. Then link the account to the taxpayer.
  2. Log in to the account and select the Registration tile on the home page
  3. Select the payroll tax registration form, enter the ABN of the employer you are registering, and search for them. The CAN and company name should then be displayed.
  4. Answer any further questions before clicking next.
  5. Answer each subsequent question on the form. Fill in all contact and employment details required.
  6. Enter your taxable wage information and regional employer discount eligibility.
  7. Finally, select your preferred payroll tax lodgement frequency, review the form, and submit when satisfied.

Your registration could take up to 4 weeks to process. You will receive a confirmation letter when the registration has been completed, which will include the next lodgement date. You do not have to lodge a return or pay until you receive a notice of registration.

Conclusion

Payroll tax is important to learn about and understand for business owners. It could have a major effect on when, and who you hire for your team, depending on what funds you have available and how close you are to the threshold. It is important to discuss these things with your accountant if you are unsure how close you are to the threshold or are unsure on payroll tax in your state or territory.

For help with payroll, come have a chat with Link Books.

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