Pay-as-you-go tax
Encyclopedia
Pay as you go is a system for businesses and individuals to pay installments of their expected tax liability on their income from employment, business, or investment for the current income year. When used as an adjective, it is often spelled pay-as-you-go (tax).

Australia

In Australia, pay-as-you-go withholding arrangements replaced pay-as-you-earn arrangements when the new tax system was introduced in July 2000. The new arrangements did not confine themselves to employment arrangements and also replaced the Prescribed Payments System and the Reportable Payments System.

Pay-as-you-go is the Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...

n taxation system for withholding taxation from employees, and other payees, in their regular payments from employers, and other payers, for example superannuation funds. It is used to collect income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...

, Higher Education Loan Programme (HELP) repayments and Medicare
Medicare (Australia)
Medicare is Australia's publicly funded universal health care system, operated by the government authority Medicare Australia. Medicare is intended to provide affordable treatment by doctors and in public hospitals for all resident citizens and permanent residents except for those on Norfolk Island...

 payments.

The system calculates an annual income on the basis of a weekly or fortnightly payment. The appropriate level of taxes and payments are then withheld and passed on to the Australian Taxation Office
Australian Taxation Office
The Australian Taxation Office is an Australian Government statutory agency and the principal revenue collection body for the Australian Government. The ATO has responsibility for administering the Australian federal taxation system and superannuation legislation...

 (ATO). For employees with only a single job, the level of taxation at the end of the year is close to the amount due, before deductions are applied. Discrepancies and deduction amounts are declared in the annual income tax return and will be part of the refund which follows after annual assessment, or alternatively reduce the taxation debt that may be payable after assessment. For an employee's primary job, the withholding tax rate is lower because of the existence of a tax-free threshold in Australia. All other work has tax withheld based on a rate that excludes the tax-free threshold.

PAYG Summary

If you have received payments during the year, you should receive a pay as you go (PAYG) payment summary from your payer (employer). The payment summary will show the total payments you received and total amounts withheld for the financial year. Payments may include income earned from part-time or casual work.

The PAYG payment summary will include all of the following:
  • your gross income from that payer
  • total tax withheld
  • your payer's Australian business number (ABN) or withholding payer number (WPN).


You need the information on your PAYG payment summary to complete your tax return.

You, the payer, are now able to submit your PAYG using a Standard Business Reporting
Standard Business Reporting
Standard Business Reporting is a group of international programs instigated by a number of governments to reduce the regulatory burden for business....

 enabled software, to submit you PAYG summary forms online.

United States of America

The plan was developed by Beardsley Ruml
Beardsley Ruml
Beardsley Ruml , was an American statistician, economist, philanthropist, planner, businessman and man of affairs in the 1920s, 1930s and 1940s. He was born in Cedar Rapids, Iowa. His father, Wentzle Ruml, was a country doctor. His mother, Salome Beardsley Ruml, was a hospital superintendent. He...

, Bernard Baruch
Bernard Baruch
Bernard Mannes Baruch was an American financier, stock-market speculator, statesman, and political consultant. After his success in business, he devoted his time toward advising U.S. Presidents Woodrow Wilson and Franklin D. Roosevelt on economic matters and became a philanthropist.-Early life...

, and Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...

 in 1942. The government forgave taxes due March 15, 1942 for year 1941, and started withholding from paychecks. It is basically the plan currently followed by the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 federal government
Federal government of the United States
The federal government of the United States is the national government of the constitutional republic of fifty states that is the United States of America. The federal government comprises three distinct branches of government: a legislative, an executive and a judiciary. These branches and...

, where taxes are withheld from each paycheck and sent to the government, as opposed to paying annual taxes in one lump sum each year.
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