How does a TFN relate to PAYG withholding?

The Tax File Number (TFN) plays a crucial role in the PAYG withholding system, as it is essential for ensuring that employers withhold the correct amount of tax from their employees' wages. When an employee provides their TFN to their employer, it allows the employer to accurately assess the employee's tax obligations and apply the appropriate rate of withholding based on their income level.

Employers are required to collect and use TFNs for PAYG purposes to comply with taxation laws and regulations. If a TFN is not provided, employers may need to withhold tax at the highest rate, leading to an increased tax burden on the employee until they can correctly report their income and claim a refund. This connection underscores the importance of the TFN in facilitating accurate tax management for both employees and employers.