July 2026 Payroll Alert: New PAYG Withholding Tables After the 1 July Tax Cut

For Australian accountants, bookkeepers and employers, one of the most relevant and timely accounting issues in July 2026 is not the 2025–26 tax return rush itself. It is the new PAYG withholding position for wages paid from 1 July 2026.

From 1 July 2026, the resident individual tax rate applying to taxable income between $18,201 and $45,000 reduces from 16% to 15%. That sounds small, but it affects payroll calculations immediately for weekly, fortnightly and monthly pay runs made in July. If payroll software, manual withholding calculations, employee declarations or payroll review processes are not updated, employers may over-withhold, create employee queries, or misalign payroll records with STP and BAS reporting.

This is a July 2026 issue because it applies based on payment date, not the period in which the work was performed. A pay run processed on 2 July 2026 for work performed in late June 2026 generally falls into the 2026–27 income year for the employee and should use the 2026–27 PAYG withholding tables.

What changed from 1 July 2026?

The key change for most payroll teams is the reduction in the first marginal resident tax rate above the tax-free threshold. For 2026–27, the resident individual income tax rates are expected to apply as follows:

• $0 to $18,200: nil tax
• $18,201 to $45,000: 15%
• $45,001 to $135,000: 30%
• $135,001 to $190,000: 37%
• Over $190,000: 45%

These rates do not include the Medicare levy, which is generally 2% where applicable. Employers do not manually apply marginal tax rates to each pay in most cases. Instead, they rely on the ATO’s PAYG withholding schedules or payroll software that embeds those schedules.

The practical accounting issue is therefore simple: every employer needs to be using the correct ATO withholding schedule for payments made on or after 1 July 2026.

Why this matters in the first July 2026 pay run

Many small businesses assume tax tables change only when payroll software prompts them. In practice, July pay runs can become messy when businesses have deferred payroll updates, processed late June wages in July, or manually adjusted amounts for directors and closely held payees.

Accountants and bookkeepers should treat the first July 2026 pay run as a control point. A small withholding error repeated across 26 fortnightly pays can create avoidable employee complaints and year-end discrepancies.

Example: fortnightly pay processed after 1 July

Assume an employee is paid $2,000 gross per fortnight. The work period ends on 30 June 2026, but the employer pays the wages on 3 July 2026. For PAYG withholding and STP reporting, the payment belongs to the 2026–27 income year because the employee was paid in July. The employer should apply the 2026–27 withholding tables, not the 2025–26 tables.

This distinction is especially important for businesses that ran final June payroll late, paid bonuses in early July, or paid directors’ fees after year-end.

July 2026 payroll checklist for accountants and bookkeepers

Use the following checklist for employer clients before their first or second July pay run.

1. Confirm payroll software is using 2026–27 tax tables

• Check the payroll settings or release notes in the client’s payroll system.
• Confirm the effective date is 1 July 2026.
• Run a test pay for a common wage amount and compare the withholding against the ATO’s 2026–27 PAYG withholding schedules.
• For clients using spreadsheets or manual calculations, replace old formulas immediately.

2. Review pay runs crossing 30 June and 1 July

• Identify any wages earned in June but paid in July.
• Check whether bonuses, commissions, back pay, leave payouts or directors’ fees were paid after 30 June 2026.
• Make sure these amounts are reported in the correct STP income year based on payment date.
• Avoid manually forcing July payments into the prior year unless a genuine correction is required.

3. Check employee tax declarations

The tax table change is a good opportunity to review employee withholding data. Accountants and bookkeepers should confirm whether the employer has current details for:

• Tax-free threshold claims
• HELP, VSL, SFSS or other study and training support loan indicators
• Medicare levy variation declarations
• Withholding variation approvals
• Working holiday maker status, where relevant

Incorrect employee setup can have a larger withholding impact than the 1% tax rate reduction itself.

4. Reconcile STP, payroll reports and BAS labels

PAYG withholding errors often show up later in BAS preparation. For the September 2026 quarter, accountants should reconcile payroll reports to BAS labels before lodgement:

• W1: total salary, wages and other payments
• W2: amounts withheld from payments shown at W1
• STP gross payments and PAYG withholding year-to-date totals
• Payroll clearing accounts in the general ledger
• Actual bank payments to employees and the ATO

Do not wait until the 2026–27 STP finalisation process to identify a July setup error. By then, the issue may have affected every pay cycle for the year.

What small business owners should do now

If you run payroll for your own business, your July action list is straightforward:

• Log in to your payroll software before the next pay run and confirm the tax tables are updated for 2026–27.
• Do not copy a June pay run without checking the PAYG withholding amount.
• If you paid June wages in July, treat the payment as a July payment for withholding and STP unless your accountant advises otherwise.
• Ask employees to update tax declarations if their study loan, residency or tax-free threshold position has changed.
• Keep a PDF or screenshot of your first July payroll report as evidence of review.

For businesses with only one or two employees, the risk is not volume. The risk is assuming nothing changed and repeating the same incorrect withholding calculation all year.

Common July 2026 mistakes to avoid

Using 2025–26 withholding tables for July payments

This is the most obvious error. The date wages are paid is the key trigger. If paid on or after 1 July 2026, use the 2026–27 tables.

Confusing payroll tax with PAYG withholding

The 1 July 2026 change discussed here relates to PAYG withholding from employee wages. It is not the same as state or territory payroll tax, which has separate thresholds, rates and due dates.

Ignoring directors and closely held payees

Closely held payees are often handled manually or outside standard payroll cycles. Directors’ fees and family wages still need correct withholding and STP treatment.

Failing to update recurring net pay arrangements

Some employers pay fixed net amounts, particularly to owners or related parties. If the PAYG withholding rate changes but the net amount is fixed, the implied gross wage may change. This can affect super, payroll reports and year-end tax planning.

Practice workflow: how to triage clients in July

Accounting firms do not need to review every client in the same depth. A risk-based workflow is more efficient.

High-risk clients

• Clients using manual payroll or spreadsheets
• Businesses that processed late June pays in early July
• Employers with directors’ fees, bonuses or commissions
• Clients with prior STP or BAS reconciliation issues
• Businesses with employees who have HELP or other study loans

Medium-risk clients

• Cloud payroll users with automated tax table updates
• Employers with stable employee data but limited internal review
• Clients that lodge quarterly BAS and rarely reconcile W1 and W2 before lodgement

Lower-risk clients

• Employers with up-to-date payroll software, clean STP records and documented payroll review procedures

For high-risk clients, review the first July pay run now. For medium-risk clients, perform a spot check before the September quarter BAS is prepared. For lower-risk clients, document that tax tables were updated and move on.

How Fedix can support July payroll and BAS review work

While the tax table update happens inside payroll software, the downstream accounting work is usually in reconciliation, BAS preparation and client follow-up. Tools like Fedix can help practices reduce the manual review burden around W1, W2, bank payments and working papers.

Fedix’s MyLedger can transform bank statements into reconciled financial data quickly, which is useful where a client’s payroll payments, ATO payments and bookkeeping records do not line up cleanly. Its ATO integration and AI working papers can also help teams track lodgement obligations and prepare BAS support with less manual admin.

As Grace Chan, CPA in Sydney, said, Fedix helped cut BAS prep time from 2 days to 1 hour. For July 2026, that kind of workflow improvement matters because payroll changes often become BAS reconciliation issues if they are not reviewed early.

Key dates to keep in view in July 2026

• 1 July 2026: new PAYG withholding tables apply to payments made from this date.
• 14 July 2026: STP finalisation due for most employers for the 2025–26 year.
• 21 July 2026: June monthly BAS due for monthly lodgers.
• 28 July 2026: June quarter BAS due for many quarterly lodgers that lodge themselves.
• 28 July 2026: super guarantee contributions for the April–June 2026 quarter must be received by funds.

The key message is that July payroll should not be treated as routine. The tax rate change, year-end payroll finalisation, BAS deadlines and super due date all overlap in the same month.

Final takeaway

The most timely Australian accounting topic in July 2026 is the practical implementation of the new PAYG withholding tables from 1 July. The change is modest in percentage terms, but it affects every employer pay run from the start of the 2026–27 income year.

Accountants and bookkeepers should check payroll systems now, review payments that cross 30 June, confirm employee withholding settings, and reconcile early against STP and BAS records. Small business owners should not wait for an employee complaint or a BAS mismatch to discover that July wages were processed using last year’s tax settings.

For practices managing multiple employer clients, a short July payroll review can prevent a full-year cleanup job later. Learn more about accounting workflow automation at fedix.ai.

Disclaimer: This article is for general informational purposes only and does not constitute professional financial or tax advice. Always consult a qualified accountant or tax professional for advice specific to your situation. Fedix.ai provides tools to assist accounting professionals but does not replace professional judgement.