When paying a bonus to an employee you may notice that the bonus tax deduction is too high, and may potentially be overtaxed. When an employee is paid a bonus, the bonus tax calculation uses an estimate of their annual earnings to calculate tax rate for the bonus.
The employee has recently received a larger than normal pay.
The employee did not receive income for part of the year.
To correct this, an override for the estimated annual earning can be used for bonus tax calculations. This override is enabled from the
Employee Profile > Tax factors tab.
Override Annual Taxable Income
When using the bonus tax method the annual taxable income is calculated automatically. However, when the estimate is too high the bonus payment may be overtaxed.
To correct for this, an estimate of the annual taxable income (and expense) can be entered manually on the
Employee Profile > Tax Factors tab for an employee receiving a bonus payment.
Open the Employee Profile of the employee:
Payroll > Employee Profile > Employee Profile.
Select the employee from the
For Bonus Tax Use Estimated Annual Taxable Income.
Enter the estimated annual
Expensefor the employee.Estimated annual earnings…
Estimated annual earnings are calculated as
Income - Expense.