Frequently asked questions about payroll tax surcharges

What is the mental health and wellbeing surcharge?

The mental health and wellbeing surcharge (MHW Surcharge) is a payroll tax surcharge that provides additional funding for Victoria’s mental health system.

The MHW Surcharge commenced on 1 January 2022.

What is the COVID-19 debt temporary payroll tax surcharge? 

The COVID-19 debt temporary payroll tax surcharge is a payroll tax surcharge that is intended to offset the debt incurred by the state as a result of providing support during the COVID-19 pandemic.

The COVID-19 Surcharge commenced on 1 July 2023 and applies for 10 years until 30 June 2033.

Read more about payroll tax surcharges

Who pays the surcharges?

Customers must pay the surcharges if:

• they pay Victorian taxable wages, and
• their Australian wages exceed the first annual threshold of $10 million.

Customers must also pay additional surcharges if:

• they pay Victorian taxable wages, and
• their Australian wages exceed the second annual threshold of $100 million.

For groups, these Australian wage thresholds apply at the group level.

The annual Australian wage thresholds are adjusted proportionately for customers who employ for less than a full financial year. 

For the period from 1 January 2022 to 30 June 2022 (transitional period for the MHW Surcharge), the respective annual Australian wage thresholds were $5 million and $50 million.

Wages that are subject to Victorian payroll tax are subject to the surcharges but any wages exempt from payroll tax (such as wages paid or payable to an employee who is taking primary or secondary caregiver leave or who is absent from work to volunteer as a firefighter or respond to other emergencies) will also be exempt from the surcharges.

How much are the surcharges?

Combined, the surcharges are:

• 1.0% of annual Victorian taxable wages over $10 million (or $833,333 on a monthly basis), and
• an additional 1.0% of Victorian taxable wages over $100 million (or $8,333,333 on a monthly basis).

For groups, these thresholds apply at the group level and are claimed by the designated group employer (DGE).

The thresholds are adjusted proportionately for customers who employ for less than the full financial year or if they are also liable to pay wages in another Australian jurisdiction.

From 1 January 2022 to 30 June 2023, only the MHW Surcharge applied, and was:

• 0.5% of annual Victorian taxable wages over $10 million (or $833,333 on a monthly basis), and
• an additional 0.5% of Victorian taxable wages over $100 million (or $8,333,333 on a monthly basis).

For the transitional period from 1 January 2022 to 30 June 2022, the respective thresholds were $5 million and $50 million.

How are the annual thresholds adjusted for customers who employ for less than the full financial year?

If a customer employs for less than the full financial year, the annual thresholds are adjusted by the ratio of the number of days they employed during the financial year to the total number of days in the financial year.

How are the thresholds adjusted for customers who also employ interstate?

If a customer also employs in other Australian jurisdictions for a financial year, then the annual thresholds are adjusted by the ratio of the total Victorian taxable wages to total Australian wages.

If a customer also employs in other Australian jurisdictions for a financial year, then the monthly thresholds are adjusted by the ratio of the estimated annual Victorian taxable wages to estimated annual Australian wages.

What are the registration and lodgement requirements?

Customers do not need to separately register or lodge separate returns for the surcharges. Their payroll tax registration and returns in PTX Express will also be used for the surcharges.

Do I have to pay the surcharge on a monthly basis?

Non-group employers

Victorian-only non-group employers:

• are not liable to pay the surcharges for any month where their Victorian taxable wages do not exceed the first monthly threshold of $833,333
• must pay the surcharges for any month where their Victorian taxable wages exceed the first monthly threshold of $833,333, and
• must also pay the additional surcharges for any month where their Victorian taxable wages exceed the second monthly threshold of $8,333,333.

Non-group employers with Victorian and interstate wages:

• If the employer’s estimated Australian wages for the financial year do not exceed the first annual threshold of $10,000,000, the employer is not liable to pay the surcharges on a monthly basis for that financial year.
• If the employer’s estimated Australian wages for the financial year exceed the first annual threshold of $10,000,000, the employer must pay the surcharges for any month in that financial year where their Victorian taxable wages exceed the adjusted first monthly threshold. 
• If the employer’s estimated Australian wages for the relevant financial year exceed the second annual threshold of $100,000,000, the employer must also pay the additional surcharges for any month in that financial year where their Victorian taxable wages exceed the adjusted second monthly threshold. 

Groups

DGEs of groups:

• If the estimated group Australian wages for the financial year do not exceed the first annual threshold of $10,000,000, the DGE is not liable to pay the surcharges on a monthly basis for that financial year.
• If the estimated group Australian wages for the financial year exceed the first annual threshold of $10,000,000, the DGE must pay the surcharges for any month where their own Victorian taxable wages exceed the relevant first monthly threshold.
• If the estimated group Australian wages for the financial year exceed the second annual threshold of $100,000,000, the DGE must also pay the additional surcharges for any month where their own Victorian taxable wages exceed the relevant second monthly threshold. 

Ordinary members of groups:

• If the estimated group Australian wages for the financial year do not exceed the first annual threshold of $10,000,000, the ordinary member is not liable to pay the surcharges on a monthly basis for that financial year.
• If the estimated group Australian wages for the financial year exceed the first annual threshold of $10,000,000, the ordinary member must pay the surcharges every month on all their Victorian taxable wages.
• If the estimated group Australian wages for the financial year exceed the second annual threshold of $100,000,000, the ordinary member must also pay the additional surcharges every month on all their own Victorian taxable wages. 

How do monthly and annual liabilities reconcile?

When non-group employers lodge their annual reconciliation, the surcharges payable on their annual Victorian taxable wages which exceed the annual thresholds is reconciled against payments made during the financial year, and any shortfall is owing or overpayment refunded (the same as for payroll tax).

When group members lodge their annual reconciliations, the surcharges payable on the annual group Victorian taxable wages which exceed the annual thresholds is reconciled against payments made during the financial year, and any shortfall is owing or overpayment refunded (the same as for payroll tax).

How are the monthly surcharges calculated?

Victorian-only non-group employers and DGEs of Victorian-only groups

For Victorian-only non-group employers with monthly taxable wages between the first and second monthly thresholds, and DGEs of Victorian-only groups with estimated annual group wages between the first and second annual thresholds and monthly taxable wages above the first monthly threshold, their monthly surcharge is calculated as follows: 

(Monthly taxable wages – $833,333) × 0.5% × 2

For Victorian-only non-group employers, and DGEs of Victorian-only groups with estimated annual group wages above the second annual threshold, with monthly taxable wages (group wages) above the second monthly threshold, their monthly total surcharges (inclusive of the ordinary surcharge and the additional surcharge) is calculated as follows:

((Monthly taxable wages × 1%) – $45,833) × 2

This formula is a mathematical simplification of calculating the surcharges at 1.0% of Victorian taxable wages exceeding $833,333 and an additional 1.0% of Victorian taxable wages exceeding $8,333,333.

Using the longer two-step method:

• Step 1: (monthly taxable wages – $833,333) × 1.0% i.e. ($10,000,000 – $833,333) × 1.0% = $91,667
• Step 2: (monthly taxable wages – $8,333,333) × 1.0% i.e. ($10,000,000 – $8,333,333) × 1.0% = $16,667
• The total MHW Surcharge payable is $91,667 + $16,667 = $108,334

Non-group employers and DGEs of groups with Victorian and interstate wages

For non-group employers with Victorian and interstate wages, and DGEs of groups with Victorian and interstate wages, with estimated annual group Australian wages between the first and second annual thresholds, the monthly total surcharges amount is calculated as follows:

(Monthly Victorian taxable wages – (estimated annual Victorian taxable wages × $833,333) ÷ estimated annual Australian wages) × 1.0%

For non-group employers with Victorian and interstate wages, and DGEs of groups with Victorian and interstate wages, with estimated annual group Australian wages above the second annual threshold, the monthly total surcharges amount (inclusive of the ordinary surcharge and the additional surcharge for both MHW and COVID-19 surcharges) is calculated as follows:

((Monthly Victorian taxable wages × 1%) – ((((estimated annual Victorian taxable wages × $833,333) + (estimated annual Victorian taxable wages × $8,333,333)) ÷ estimated annual Australian wages) × 0.5%) × 2

This formula is a mathematical simplification, which takes into account the adjustments to the monthly thresholds reflecting the ratio of the total Victorian taxable wages to total Australian wages, and calculates the total surcharge amount at 1.0% of Victorian taxable wages exceeding the adjusted first monthly threshold and an additional 1.0% of Victorian taxable wages exceeding the adjusted second monthly threshold.

Ordinary members of groups (with or without interstate wages)

For ordinary members of groups (with or without interstate wages), with estimated annual group wages between the first and second annual thresholds, their monthly total surcharges amount is calculated as follows:

Monthly taxable Victorian wages × 1.0%

For ordinary members of groups (with or without interstate wages), with estimated annual group wages above the second annual threshold, their monthly total surcharges amount (inclusive of the ordinary surcharge and the additional surcharge for both MHW and COVID-19 surcharges) is calculated as follows:

Monthly taxable Victorian wages × 2%

How is the annual total surcharges amount calculated from 1 July 2023?

Victorian-only employers and groups

For Victorian-only employers and groups with taxable wages between the first and second annual thresholds, their annual total surcharges amount is calculated as follows:

(Annual taxable wages − $10,000,000) × 1.0%

For Victorian-only employers and groups with taxable wages above the second annual threshold of $100,000,000, their annual total surcharges amount (inclusive of the ordinary surcharge and the additional surcharge for both MHW and COVID-19 surcharges) is calculated as follows:

((Annual taxable wages × 1%) − $550,000) × 2

This formula is a mathematical simplification of calculating the total surcharges at 1.0% of Victorian taxable wages over $10 million and an additional 1.0% of Victorian taxable wages over $100 million.

Employers and groups with Victorian and interstate wages

For employers and groups with Victorian and interstate wages, with annual Australian wages between the first and second annual Australian wage thresholds, their annual total surcharges amount is calculated as follows:

(Annual Victorian taxable wages − ((annual Victorian taxable wages × $10,000,000) ÷ annual Australian wages)) × 1.0%

For non-group employers and groups with Victorian and interstate wages, with annual Australian wages above the second annual Australian wage threshold, their annual total surcharges amount (inclusive of the ordinary surcharge and the additional surcharge for both MHW and COVID-19 surcharges) is calculated as follows:

(Annual Victorian taxable wages × 1%) − ((((annual Victorian taxable wages × $10,000,000) + (annual Victorian taxable wages × $100,000,000)) ÷ annual Australian wages) × 0.5%) × 2

This formula is a mathematical simplification, which takes into account the adjustments to the annual thresholds reflecting the ratio of the total Victorian taxable wages to total Australian wages, and calculates the total surcharges amount at 1.0% of Victorian taxable wages exceeding the adjusted first annual threshold and an additional 1.0% of Victorian taxable wages exceeding the adjusted second annual threshold.

How was the MHW Surcharge calculated for the transitional period (1 January 2022 to 30 June 2022)?

Victorian-only employers and groups

For Victorian-only employers and groups with taxable wages between the first and second thresholds for the period from 1 January 2022 to 30 June 2022, their MHW Surcharge for the period from 1 January 2022 to 30 June 2022 was calculated as follows:

(Taxable wages for period – $5,000,000) × 0.5%

For Victorian-only employers and groups with taxable wages above the second threshold for the period from 1 January 2022 to 30 June 2022, their MHW Surcharge (inclusive of the ordinary surcharge and the additional surcharge) for the period from 1 January 2022 to 30 June 2022 was calculated as follows:

(Taxable wages for period × 1%) − $275,000

This formula is a mathematical simplification of calculating the surcharge at 0.5% of Victorian taxable wages exceeding $5 million and an additional 0.5% of Victorian taxable wages exceeding $50 million.

Employers and groups with Victorian and interstate wages

For employers and groups with Victorian and interstate wages, with Australian wages between the first and second thresholds for the period from 1 January 2022 to 30 June 2022, their MHW Surcharge for the period from 1 January 2022 to 30 June 2022 was calculated as follows:

(Victorian taxable wages for period − ((Victorian taxable wages for period × $5,000,000) ÷ Australian wages for period)) × 0.5%

For employers and groups with Victorian and interstate wages, with Australian wages above the second Australian wage threshold for the period from 1 January 2022 to 30 June 2022, their MHW Surcharge (inclusive of the ordinary surcharge and the additional surcharge) for the period from 1 January 2022 to 30 June 2022 was calculated as follows:

(Victorian taxable wages for period × 1%) − ((((Victorian taxable wages for period × $5,000,000) + (Victorian taxable wages for period × $50,000,000)) ÷ Australian wages for period) × 0.5%)

This formula is a mathematical simplification, which takes into account the adjustments to the thresholds reflecting the ratio of the total Victorian taxable wages to total Australian wages, and calculates the MHW Surcharge at 0.5% of Victorian taxable wages exceeding the adjusted first threshold and an additional 0.5% of Victorian taxable wages exceeding the adjusted second threshold.

How do I disclose my taxable wages for the transitional period?

In your annual reconciliation for the 2021-22 financial year, we asked you to disclose your taxable wages for the full financial year. 

If you are liable to pay the surcharge, in your annual reconciliation we also asked you to disclose your wages for the transitional period.

How do I disclose fringe benefits for the transitional period?

If you provide certain fringe benefits to your employees, you must disclose those fringe benefits in your taxable wages in your payroll tax returns. 

Find out more about disclosing fringe benefits

If you provide fringe benefits and are liable for the surcharge, in your 2021-22 annual reconciliation we asked you to disclose your fringe benefits for both the financial year and for the transitional period. 

To correctly disclose your fringe benefits for the transitional period:

• If you use the actual method, disclose the actual fringe benefits you provided for the transitional period grossed up by the type 2 gross up rate.
• If you use the alternative method, disclose one half of the fringe benefits you declared in your Fringe Benefits Tax return for the year ending 31 March 2022 grossed up by the type 2 gross up rate.

Refer to Revenue Ruling PTA-003v2 for more information on methods of disclosing fringe benefits.