How Schedule 1 works
The ATO publishes withholding as a set of straight-line formulas, y = ax − b, where y is the weekly amount to withhold and x is the weekly earnings. The coefficients a and b change with the earnings band and with the scale that matches your tax file number declaration.
- Convert to weekly earnings. Weekly pay is used as is. Fortnightly pay is halved. Monthly pay is multiplied by 3 and divided by 13 (adding one cent first if the amount ends in 33 cents). Quarterly pay is divided by 13.
- Drop the cents and add 99 cents. $1,333.45 becomes x = $1,333.99.
- Find the band and apply y = ax − b. Round the result to the nearest dollar (50 cents rounds up) — directly, without rounding to cents first.
- Scale back to the pay period. Fortnightly: y × 2. Monthly: y × 13 ÷ 3, rounded to the nearest dollar. Quarterly: y × 13.
- Subtract offsets claimed on a withholding declaration: 1.9% of the annual amount per weekly pay, 3.8% per fortnightly pay, 8.3% per monthly pay.
Worked examples from the ATO
The calculator is tested against the examples the ATO publishes with the 2026 schedule. Tan earns $5,400.33 a month, claims the tax-free threshold and a $1,365 tax offset. The weekly equivalent is ($5,400.34 × 3) ÷ 13 = $1,246.23, so x = $1,246.99. In the $865 – $1,282 band, a = 0.3227 and b = 185.1935, giving $217 a week. Monthly that is $217 × 13 ÷ 3 = $940, less 8.3% of $1,365 ($113), so $827 is withheld.
ATO example: $5,400.33 a month, scale 2, $1,365 offsets
- Net pay
- $4,573.33
- Withheld over a year
- $9,924
Schedule 1 calculation (payments from 1 July 2026)
- Scale used
- Scale 2 – tax-free threshold claimed
- Weekly earnings used in the formula (x)
- $1,246.99
- Coefficients a / b
- 0.3227 / 185.1935
- Weekly withholding y = a·x − b (rounded)
- $217
- Withholding before offsets
- $940
- Less tax offsets claimed
- -$113
- PAYG withheld this pay
- $827
Prue is paid $1,299.30 a fortnight, has a full Medicare exemption (scale 5) and claims $1,645 of offsets. Her weekly equivalent is x = $649.99, the weekly withholding is $43, the fortnightly amount $86, and after 3.8% of $1,645 ($63) she has $23 withheld.
What changed on 1 July 2026
The ATO reissued Schedule 1 on 17 June 2026 to reflect the 15% tax rate on income between $18,201 and $45,000. The tax-free band on scale 2 now ends at $362 a week. The Medicare levy now starts at weekly earnings of $538 and is fully phased in at $673, reflecting the higher low-income threshold of $28,011. Scale 1 — used when the tax-free threshold is not claimed — now begins at 15c in the dollar on the first $188 a week.
Practical tips for employers and employees
- Only one employer should apply scale 2. If you have two jobs and both apply the tax-free threshold, too little is withheld and you will get a bill.
- Lodge a Medicare levy variation declaration if you qualify for an exemption or a family reduction; otherwise the levy is withheld in full.
- Allowances subject to withholding are added to earnings before the 99 cents step. Reimbursements that are not income are left out.
- Check the annual effect with the pay calculator, which compares a year of withholding with the tax actually payable.