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Payroll tax is a tax that businesses pay on the wages they pay to employees. If your annual taxable wages are higher than the payroll tax threshold for your state or territory, youโre liable to register and pay payroll tax.
Unlike income tax, payroll tax isnโt administered by the ATO. Instead, every state and territory has its own rates and thresholds, which are in constant flux. Hereโs what you need to know about how payroll tax works, the current rates for 2025โ26, your obligations as an employer, and more!
What is payroll tax?
Payroll tax is a tax on a companyโs total wages, which is self-assessed and paid by the employer โ not the employee. Every state and territory sets its own payroll tax rate, threshold amount, and exemptions.
You are liable for payroll tax when the total wages you pay exceed the tax-free threshold in the relevant state/territory. Payroll tax is separate from PAYG withholding and income tax, which are managed by the ATO.
What are taxable wages for payroll tax?
Taxable wages generally include salaries, super contributions, allowances, fringe benefits, and payments to certain contractors. They apply to all workers โ full-time, part-time and casual.
Payroll tax is usually calculated on your total Australian wages, not just the wages paid in one state or territory. This means your Australia-wide wages determine your threshold entitlement and whether you need to register.
Top tip: In 2026, some jurisdictions apply additional surcharges for very large employers (e.g., an 8.75% rate in the ACT for employers with Australia-wide wages exceeding $150 million).
What are the payroll tax rates and thresholds for each state?
Below youโll see the current rates and annual thresholds for the 2025โ26 financial year. Make sure to check with your state revenue office before lodging.
| State or territory | Annual threshold | Monthly threshold | Tax rate |
|---|---|---|---|
| New South Wales | $1,200,000 | $100,000 | 5.45% |
| Victoria | $1,000,000 | $83,333 | 4.85% |
| Queensland | $1,300,000 | $108,333 | 4.75% |
| Western Australia | $1,000,000 | $83,333 | 5.5% |
| South Australia | $1,500,000 | $125,000 | 4.95% |
| Tasmania | $1,250,000 | $104,166 | 4.0% |
| Northern Territory | $1,500,000 | $125,000 | 5.5% |
| ACT | $2,000,000 | $166,666 | 6.85% |
Source: https://www.payrolltax.gov.au/resources
How do interstate wages impact your payroll tax?
If you pay wages in more than one state or territory, your payroll tax threshold is based on your total Australian wages. If your business pays wages in more than one jurisdiction, the thresholds payroll tax rates and entitlement rules in each state will play into your overall liability.
If a New South Wales employer pays $1 million of a $2 million total Australian wage bill in NSW, for example, then their NSW threshold is $1,200,000 ร ($1M รท $2M) = $600,000. They would pay the NSW tax rate on wages above $600,000.
How does payroll tax work for employer groups?
Related businesses can be grouped for payroll tax. When businesses are grouped, only one designated group employer can claim the threshold. All other group members are non-threshold claimers.
The total wages of all group members are added together, which means groups canโt multiply their threshold entitlement by having multiple entities. The grouping rules affect most businesses that share common ownership or control.
While some firms may intentionally keep their total payroll costs just below the threshold to avoid paying payroll tax, this behaviour is not as widespread as believed.
Are there exemptions to payroll tax?
Some employers are entitled to exemptions, including wages paid to apprentices, trainees, and employees of charities or religious institutions. Every state sets its own exemption rules.
If an employer pays wages only to exempt workers, they might not need to register. However, if a business also pays wages to non-exempt staff and the total exceeds the thresholds, payroll tax rates still apply to the non-exempt portion.
What are your payroll tax obligations?
As an employer, you have to register for payroll tax once your wages go above the monthly threshold in any state where you employ staff. You then self-assess your payroll tax liability for each period.
Most employers lodge and pay monthly. You have to submit returns even in months when your liability is zero. An annual reconciliation is due by 28 July. For the full financial year, reconcile all wages paid against your annual threshold, then check with your state revenue office for all the exact due dates.
Failure to register, lodge, or pay on time can result in penalties, so keep good records of all wages paid using payroll software and STP reporting tools. For state-specific tips, visit your state revenue office or consult an advisor or accountant.
