^
Login

Method A and B(ii) Tax Withholding Calculator

This tool calculates the additional tax withholding required under the ATO's Schedule 5 rules when an employee receives a lump sum or additional payment on top of their regular pay.

Method A spreads the additional payment across the number of pay periods it relates to, calculates the withholding on the combined annualised figure, then extracts the extra amount. It is suited to back payments and bonuses that cover a known period.

Method B(ii) uses a year-to-date averaging approach. It averages total earnings across all pay periods processed so far, calculates a projected annual withholding, then subtracts what has already been withheld. It is suited to ongoing commissions or recurring additional payments.

In both methods the additional withholding is capped at 47% of the additional payment amount as required by the ATO.

Legal Disclaimer Show

Tax Configuration Settings

Earning Values

Prior B(ii) Values

Calculation Steps

Set values and click Calculate.

You can also pass all fields in the URL query string for automation.

Frequently Asked Questions about Method A & B(ii)

1. How does the lump sum calculation work using Method A?

Method A works by dividing the additional payment by the number of pay periods it relates to, then adding that amount to the employee's normal earnings for one period. Tax is calculated on the combined amount and on the normal earnings alone — both annualised. The difference in tax is then multiplied by the number of periods to get the withholding on the extra payment. The result is capped at 47%.

2. When is Method A used?

It is used when an employee is paid an additional amount that relates to more than just the current pay period.

3. How does Method A work?

It spreads the additional payment across a number of pay periods, compares the tax difference, and then works out how much tax to withhold.

4. Can Method A be used for commission payments?

Yes, method A is commonly used for commissions, bonuses, and similar payments.

5. Does Method A change the employee's final tax?

Not usually. It mainly changes the withholding during payroll, while final tax is worked out in the employee's tax return.

6. What is the 47% cap in Method A?

It is the maximum withholding limit applied at one of the final steps in the calculation.

7. Can Method A be automated in payroll software?

Yes. Payroll software like Microkeeper, Deputy, Employment Hero, QuickBooks can apply the tax calculation steps automatically once the payment line is entered.

8. How does the lump sum calculation work using Method B(ii)?

Method B(ii) works by taking the employee's total year-to-date regular earnings and calculating what the annual tax would be both with and without the additional payment included. The difference between those two tax figures is the withholding on the extra payment. Because it uses actual YTD earnings rather than spreading the payment across periods, it can produce a more accurate result, particularly later in the financial year. The result is capped at 47%.

9. What is the difference between Method A and Method B(ii)?

Method A spreads the payment across periods. Method B(ii) compares previously calculated tax outcomes using earlier earnings.

10. Which method should be used between Method A and Method B(ii)?

It depends on the circumstances. Method A is often used for back payments and bonuses, while Method B(ii) is used for ongoing commissions or recurring additional payments.

11. When is Method B(ii) used and what payments does it apply to?

It is used when a lump sum payment relates to an earlier period rather than only the current pay period. It can apply to back payments, arrears, and other similar lump sum amounts where using YTD earnings gives a more accurate withholding result.

12. Does Method B(ii) use the employee's earlier earnings?

Yes. It looks at what the employee earned in the earlier period the payment relates to.

13. Why is Method B(ii) more complex?

Because it requires past pay information to work out the withholding correctly.

14. Does Method B(ii) always increase tax?

No. It depends on the employee's earlier earnings and the amount being paid.

15. Does Method B(ii) affect final income tax?

Usually it affects payroll withholding only. Final tax is still worked out in the employee's tax return.

16. Why is Method B(ii) important?

It helps make withholding on back payments more accurate when a payment relates to a prior period.

S2