Definitions

As You Like It

Pay-as-you-go tax

Pay-as-you-go is a system for businesses and individuals to pay installments of their expected tax liability on their income from employment, business, or investment for the current income year.

Australia

In Australia, Pay As You Go withholding (PAYG) arrangements replaced Pay as You Earn arrangements when the new tax system was introduced in July 2000. The new arrangements did not confine themselves to employment arrangements and also replaced the Prescribed Payments System and the Reportable Payments System.

PAYG (or pay-as-you-go) is the Australian Taxation system for withholding taxation from employees, and other payees, in their regular payments from employers, and other payers, for example superannuation funds. It is used to collect income tax, Higher Education Loan Programme (HELP) repayments and Medicare payments.

The system calculates an annual income on the basis of a weekly or fortnightly payment. The appropriate level of taxes and payments are then withheld and passed on to the Australian Taxation Office (ATO). For employees with only a single job, the level of taxation at the end of the year is close to the amount due, before deductions are applied. Discrepancies and deduction amounts are declared in the annual income tax return and will be part of the refund which follows after annual assessment, or alternatively reduce the taxation debt that may be payable after assessment. For an employee's primary job, the withholding tax rate is lower because of the existence of a tax-free threshold in Australia. All other work has tax withheld based on a rate that excludes the tax-free threshold.

United Kingdom

In the United Kingdom a similar system known as PAYE is used.

Republic of Ireland

The PAYE system is also used in the Republic of Ireland

United States of America

The plan was developed by Beardsley Ruml, Bernard Baruch, and Milton Friedman in 1942. The government forgave taxes due March 15, 1942 for year 1941, and started withholding from paychecks. It is basically the plan currently followed by the United States federal government, where taxes are withheld from each paycheck and sent to the government, as opposed to paying annual taxes in one lump sum each year.

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