How your employer works out the tax on your pay

Updated 13 November 2026.

Employers don't guess the tax on your pay. They use formulas the ATO publishes each year, either through payroll software or the ATO's tax tables. Here's how it works for 2026–27.

1. Convert your pay to a weekly amount

The formulas are written for weekly pay. A fortnightly pay is halved. A monthly pay is multiplied by 3 and divided by 13. Cents are dropped, then 99 cents is added.

2. Pick the right scale

The scale depends on your Tax file number declaration: whether you claimed the tax-free threshold, whether you're a foreign resident, whether you gave a TFN, and whether you claimed a Medicare levy exemption.

3. Apply the formula

Each scale has income bands, and each band has two numbers, a and b. Weekly tax withheld is a × weekly earnings − b, rounded to the nearest dollar (50 cents rounds up).

4. Convert back to your pay period

The weekly amount is doubled for a fortnightly pay, or multiplied by 13 and divided by 3 for a monthly pay. Any tax offsets or Medicare levy adjustment you've claimed are then taken off.

Worked example

On $1,500 a fortnight with the tax-free threshold claimed, the weekly equivalent is $750.99. The 2026–27 scale 2 formula for that band is 0.1790 × 750.99 − 60.8377 = 73.59, which rounds to $74 a week, or $148.00 a fortnight.

Our calculator follows these steps exactly and is checked against the ATO's sample data.