Withholding Too Much Payroll Tax

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GaboroneBaptist
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Joined: Fri Aug 25, 2017 9:38 am

Withholding Too Much Payroll Tax

Post by GaboroneBaptist »

We have an employee who was authorized for a bonus in addition to the monthly salary. This bonus was earned for 3 years of continuous employment. I added a payroll income item for the bonus. However, when the system calculates the tax, it seems to take the amounts of the tax table and divide by 12 for monthly employees to get a monthly amounts. So when I pay the salary plus bonus for the monthly employee, the system seems to do the calculation based on this new amount being paid every month, which is not the case. This results in the employee having more taxes withheld than the annualized amounts as entered into the tax table. Is this how the taxes are computed? How can I pay a bonus without the system withholding more tax than the annualized amounts?

I have another employee who had a payroll increase during the tax year. If the original salary were annualized, it would put the employee in the 1st tax bracket. If the new salary were annualized, it would put the employee in the 2nd tax bracket. Yet when the original salary for part of the year is added to the new salary for part of the year, the annualized salary is in the 1st tax bracket. So how can I process payroll so that it withholds based on the employee's annual income instead of an annualizing the employee's new salary amount?

Or are both of these questions a limitation of the payroll system?

As a matter of disclosure, the church is not in the US or Canada but is in Botswana. There are many similarities, which is why (in part) we selected PowerChurch. So we are just trying to figure out exactly how the tax computation works so that we can possible change some settings to allow us to withhold correctly. Maybe the answer is that the employee will have more tax withheld, and they will just need to file their tax return to get the refund of the money. But if there is a way that we can adjust the system to withhold as per our tax laws, that would be most beneficial for our employees.

Thanks in advance.
James

NeilZ
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Re: Withholding Too Much Payroll Tax

Post by NeilZ »

James,

I'm assuming you're using v12, if your using v11.55 this should also cover that version (as well as v11 I believe)>

the Payroll Tax Withholding is based on the ANNUAL tax bracket. The setup of the tax tables is covered on page 317 of the Powerchurch v12 Users Manual.

Based on what I was able to find, your Annual Tax Table there is much like that in the US. So the system will withhold based on the annual income. I'm not sure if the Salary History plays into the calculations or not, but if the one person had a pay rise on 1 March, you should list that in the Salary History. The program should have prompted you if you wanted to add that to the history.

As far as the person who got the bonus, as long as the bonus is NOT checked in the Pay Item List for the next payroll period, the tax withholding will revert to the base salary.

That said, in the US if when the employee goes to file taxes, and the tax he owes is LESS that what was withheld, they get a refund. Not sure if that happens there.

Does this help?
Neil Zampella

Using PC+ since 1999.

GaboroneBaptist
Posts: 17
Joined: Fri Aug 25, 2017 9:38 am

Re: Withholding Too Much Payroll Tax

Post by GaboroneBaptist »

Thanks. Yes, we are on version 12.

It seems that the tax is based on the annualized amount of the paycheck, not the annual income. For example, if the employee was paid 3000 once a month, then the system would compute the tax for 36000 per year and divide by 12. That amount would then be the tax.

But let's say the employee earned this 3000 per month for 6 months, and then the pay was increased to 3500 per month for 6 months. The system would compute withholding at 36000 per annum for 6 months, and 42000 per annum for 6 months. It does not compute the tax at 39000. So the employee may have more or less tax withheld.

Yes, the tax authority here is much like the US in that people file annual returns and they will either pay the tax authority or receive a refund from the tax authority.

The concern is that the tax authority has said that we can adjust the tax withholding so that the total tax withheld in the year is correct and thereby the employee is not owed a refund.

Maybe I just need to create a manual tax withholding so that I can adjust the tax computed.

I was just trying to understand how the system computes tax ... if it uses an annualized amount based on current pay ... or the actual annual pay based on the pay checks.

James

NeilZ
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Re: Withholding Too Much Payroll Tax

Post by NeilZ »

GaboroneBaptist wrote:Thanks. Yes, we are on version 12.

It seems that the tax is based on the annualized amount of the paycheck, not the annual income. For example, if the employee was paid 3000 once a month, then the system would compute the tax for 36000 per year and divide by 12. That amount would then be the tax.

But let's say the employee earned this 3000 per month for 6 months, and then the pay was increased to 3500 per month for 6 months. The system would compute withholding at 36000 per annum for 6 months, and 42000 per annum for 6 months. It does not compute the tax at 39000. So the employee may have more or less tax withheld.

Yes, the tax authority here is much like the US in that people file annual returns and they will either pay the tax authority or receive a refund from the tax authority.

The concern is that the tax authority has said that we can adjust the tax withholding so that the total tax withheld in the year is correct and thereby the employee is not owed a refund.

Maybe I just need to create a manual tax withholding so that I can adjust the tax computed.

I was just trying to understand how the system computes tax ... if it uses an annualized amount based on current pay ... or the actual annual pay based on the pay checks.

James
The system uses the annual tax tables, and it will adjust the taxes based on the current income for the pay period which would include a bonus. It will revert to the previously withheld amount the next pay period as it does not have a bonus included.

That said, I will have a techie look at this thread to get a final answer.
Neil Zampella

Using PC+ since 1999.

Zorak
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Re: Withholding Too Much Payroll Tax

Post by Zorak »

All of that appears to be correct. It is how the tax table calculations work.

Even if PowerChurch was using a Monthly tax table instead of the Annual, it would take this one month's taxable amount and calculate a higher tax amount for it. The calculations are all based on this one check, it doesn't try to predict what the actual annual salary will be. This check's taxable income is multiplied by 12 for a monthly employee and compared to the annual tax table to get the percentage and deduction amount.

It should come out to the same calculation as if you look directly at a monthly table and compared this check amount. Higher income on that one check will mean higher tax, possibly into the next tax bracket. But, as Neil said, the next check will go back down to the normal tax calculation.

It is possible to set the tax withholding on this employee to Manual Amount and tell it to deduct a specific amount instead of using the tax table calculations.

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