PAYG instalments calculator
Two methods of paying tax in instalments compared, with the working capital the wrong choice ties up.
Quarterly instalment, rate method
Estimate$7,464.00
27.14% of each quarter's income, against a fixed 9,500 under the amount method
- Quarterly, amount method
- $9,500.00
- Tax you will actually owe
- $25,720
- Overpaid under the amount method
- $12,280
| Income this year | $110,000 |
|---|---|
| Instalment rate from last year | 27.14% |
| Rate method, a year | $29,857 |
| Amount method, a year | $38,000 |
| Tax actually payable | $25,720 |
- The amount method has you paying $12,280 more than you will owe, tied up until the return is assessed. On a falling income the rate method frees that working capital.
- You may vary an instalment down if you expect to owe less, but varying to below 85% of the eventual liability attracts a penalty.
A fixed instalment based on last year’s $38,000 tax overpays all year when income falls from $140,000 to $110,000, and the refund only arrives at assessment.
Side by side
How this is calculated
A rate method tracks current income
Dividing last year’s tax by last year’s income gives a rate — $38,000 on $140,000 is 27.14% — which is then applied to this year’s actual quarterly income rather than a stale total.
rate = prior year tax ÷ prior year incomeA fixed instalment lags reality
Using last year’s tax as a fixed quarterly figure means income falling from $140,000 to $110,000 still pays instalments sized for the higher year until the return is lodged.
quarterly amount = prior year tax ÷ 4Reducing an instalment carries risk
Australia allows a variation but charges interest if you vary below 85% of the eventual liability, so an optimistic estimate costs more than a conservative one.
Worked example: Income falling from $140,000 to $110,000, last year’s tax $38,000
| This year | $110,000 |
|---|---|
| Last year | $140,000 |
| Instalment rate | 27.14% |
|---|---|
| Fixed amount | $9,500 a quarter |
Instalment systems differ by country. Pick a country above for the method choices available to you.
What this assumes
- Quarterly instalments.
- Business or investment income only.
- No credits applied to the instalment.
- Prior year figures from a lodged return.
Where this commonly goes wrong
- Instalments are a prepayment credited against the final assessment, so overpaying costs working capital rather than tax.
- Entry into an instalment system is often automatic once income passes a threshold, which surprises people in a first strong year.
- The method choice is frequently locked for the year after the first instalment, so it is decided early.
Questions
How do tax instalment methods differ?
Australia offers a fixed amount from last year’s return, or a rate — last year’s tax over last year’s income, 27.14% here — applied to this year’s actual quarterly income.
Which is better when income changes?
The rate method, because it moves with what you actually earn. A fixed amount based on a $140,000 year overpays throughout a $110,000 year and only refunds at assessment.
Is an instalment an extra tax?
No. It is a prepayment credited against the final assessment, so overpaying costs the use of the money until you lodge rather than costing tax.
Related tools
Sources
General estimate based on published ATO rates for the the current period. Not tax advice, and it does not consider your objectives, financial situation or needs. Confirm your position with the ATO or a registered tax agent.
T1