Canadian Payroll - Lump Sum Payment and taxes

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Posted on by Ron Alexander

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I'm working with a client who is running GP 18.3 and wanted to get verification the program is working as intended for lump sum payments.

We setup an Income Paycode for Severance pay with a Reference = Lump Sum Payment. We created a transaction with this pay code for $4000 and calculated the batch. The tax calculated was $400. We agree this is the correct amount (10%).

We reviewed the employees previous payroll check which consisted only of hourly pay and made note of the tax amount.

We then created a new batch with the Severance code for $4000 and the employees normal hourly pay code with an amount of $500. When we calculated the batch, the taxes appear to be much higher than when the pay is processed is a separate batch. It appears the calculation is taxing the entire $4500 at the normal tax rates.

I saw an article for GP 10.0 which stated the Lump Sum Payments needed to be paid in a separate batch. I wanted to verify the program is still designed this way, and the user will need to process their Lump Sum entries separately from any other pay.

Thanks - Ron

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Microsoft Dynamics GP

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Ron Alexander 185 on at

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RE: Canadian Payroll - Lump Sum Payment and taxes

Thanks Cheryl - I appreciate the detailed information on how the taxes are calculated in this situation.
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Cheryl Waswick on at

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RE: Canadian Payroll - Lump Sum Payment and taxes

Hello,

Yes, when you process the lump sum amount (Bonus) by itself, it will use the flat amount of 10/20/30% if no other income codes are present. However, when you process the bonus with other income codes in the same batch, then it uses a different calculation for the taxes, which is also approved by the CRA. It figures the tax both ways on the bonus and takes the higher of the two, which is most likely why you have seen the higher tax amount in your testing. This calculation is also an acceptable calculation b the CRA. Remember that taxes are just an 'estimate' and we calculate the best we can. Canadian Payroll is flexible too so you can edit the tax amount on the fly too if you wish, but it is an acceptable calculation so you can leave it too. Otherwise, you would have to process it in a batch by itself if you want the straight 10/20/30 rule.

Hope that helps.

Thanks

Cheryl W

Microsoft Support