Bonuses
This article describes how to tax bonuses correctly. The first thing to determine is over how many pay periods the bonus is paid. For example, if you run your pays monthly and the bonus is paid over two months - this equates to 2 pay periods. If the bonus is one-off and does not relate to any particular period (eg. a Christmas bonus), the pay periods are taken to be the total pay periods in the year (52 for weekly pays, 26 for fortnightly pays and 12 for monthly pays). The basic principle of taxing bonuses is to average out the bonus payment over the total period you are paying, calculating the tax you should have paid and then subtracting the amount of tax you actually paid. If you simply added the bonus to the taxable income in a single pay period and calculated the tax directly, you could calculate a disproportionately larger amount of tax than is necessary. To illustrate, let's say Bob gets a weekly gross income of $500. He pays a tax of $150 each week. At the end of the February, Bob gets a bonus of $4,000 over the period of 4 weeks.Step 1: Determine the pay is a single pay period
$500 (for 1 week pay period)Step 2: Determine the tax paid in 1 period
In our example, $150 tax is paid each weekStep 3: Average out the bonus over each period.
This would be $500 plus $4000 over 4 pay periods,
that is 500 + (4000 / 4) = $1,500. Step 4: Calculate the tax for the new averaged out pay for each period.
Let's say tax on $1,500 is $520 for Bobs tax scale.Step 5: Subtract the tax in Step 2 from the tax in Step 4 and multiply by the total periods in which the bonus was paid
( $520 - $150 ) * 4 pay periods = $1,480. This is the tax on the bonus amount alone.
If the amount for each pay over the 4 week period was not a constant $500, you would have to calculate the tax difference for each period individually and then add up the differences, otherwise you probably may end up paying a bit extra tax. The Tax Calculator assumes that the amount of pay each period is constant.Superannuation must be paid on bonuses regardless of whether they are paid in relation to performance or not. The exception are bonuses paid with respect to overtime. |
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Sunday, 5th Feb 2012
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