Payroll Tax Vs Income Tax: What’s the Difference?

Payroll Tax Vs Income Tax: What’s the Difference?

To meet your company’s tax obligations, you must understand the difference between payroll tax and income tax. As an employer, you are responsible for managing these withholdings, but each is different and serves a distinct purpose in your payroll process. It is essential to learn about the difference between income tax and payroll tax, how they work, and how to meet tax obligations.

Payroll Tax: What Is It and How Does It Work?

If your company pays its employees, you are liable to pay payroll tax. It is a state or territory tax, which is calculated based on the total salaries you pay each month. The state or territory that your workers live in collects the tax. Not all companies are liable to pay payroll tax. If your total Australian wages surpass the tax-free threshold for a specific state or territory, then you are liable to pay payroll tax. Tax rates and thresholds vary between states and territories. You can reach out to the top accounting firms in Melbourne to learn about your payroll tax obligations.

When Are You Required to Register for Payroll Tax?

If your total Australian wages are above the threshold, then you are required to register for payroll tax. For example, in the 2024-25 fiscal year, South Australia and Victoria had monthly thresholds of $125,000 and $75,000, respectively. If your total Australian wage bill is above this threshold, then you have to register for payroll tax. However, if your total Australian wage bill is less than or comes under the maximum threshold for your state or territory, you are not required to pay payroll tax.

What is an Income Tax?

Income tax is an important source of revenue for the government. It is a significant cost to businesses and individuals. The Australian Taxation Office (ATO) administers the Australian taxation system. You are liable to pay income tax on your bonuses, salaries, wages, dividends, commissions, and any other income that you earn in Australia. Income tax can be paid by yourself using a PAYG payment or withheld from your pay by your employer. Make sure to hire someone who has enough knowledge and experience handling such tax affairs when searching for a ‘small business accountant near me’.

Australian resident tax rates 2024–25

Difference between Payroll Tax and Income Tax

• Employer pays payroll tax on behalf of the employee. Keep one thing in mind that the payroll tax amount paid by an employer depends on how much they earn. On the other hand, employees pay income tax depending on their income level. However, both payroll tax and income tax are withheld by employers when making payroll.
• The primary difference between income tax and payroll tax is that employers pay payroll taxes to a government agency for an individual, while individuals are liable to pay their income tax to a government agency.
• Calculation of an income tax is made different than payroll taxes beacause they depend on percentage rates while payroll taxes are calculated depending on salary levels.

Unless you operate a business, your primary concern should be income tax. However, if you run a business, even a small one, and have employees, it’s essential to understand payroll tax or hire an expert tax accountant, as this tax is what employers must remit to the government on behalf of their employees. You must meet certain record-keeping requirements for payroll tax, and this is where you can seek help from a bookkeeper in Melbourne.

Keep in mind that the employer’s contribution is based on the employee’s income level.As an employee in Australia, there’s no action required on your part because payroll tax is automatically deducted from your salary as a percentage.

Conclusion

Now, you have a clear understanding of the difference between payroll tax and income tax. When dealing with such types of tax affairs, you need to meet certain tax obligations. If you are unfamiliar with certain tax obligations, you can seek help from Reliable Melbourne Accountants.