Budget 2020 income tax cuts: The time has come to update your payroll

Budget 2020 income tax cuts (1)

The Australian Taxation Office (ATO) has updated its Pay as You Go Withholding (PAYGW), to reflect the personal tax cuts announced in this year’s federal budget.

The tax cuts apply to the 2020-21 financial year and came into effect late October.

Now, employers must adjust their payroll systems to ensure the changes are correctly reflected in employees’ pay packets.

The cut-off date to have these new tax brackets in your payroll system is November 16, 2020.

However, the changes will apply to all payments made from October 13.

The ATO has made note that the change is complex, and some businesses may require more assistance than others.

“As such, some employees may notice the tax cuts reflected in their take-home pay within a few days or weeks, while for others it may be longer,” the ATO has noted.

For businesses using our preferred accounting software Xero, the tax brackets have already been updated accordingly.

The updated information follows a tax cut for some 11 million Aussies, announced in this year’s federal budget, which is backdated to July 1 this year.

Lower- and middle-income earners will get a backdated cut of up to $2,745 for singles, and up to $5,490 for dual-income families, compared to 2017-18.

“Australians will have more of their own money to spend on what matters to them, generating billions of dollars of economic activity and creating 50,000 new jobs,” Josh Frydenberg said in his speech.

While employees won’t get refunds, per se, for tax already paid this year, their annual contribution will be evened out through reduced tax withholding via payroll deductions, for the rest of the financial year.