Tax Adjustments

How do I adjust the tax amount on a pay run?

The procedure for adjusting the amount of tax is the same regardless of whether it is a Normal, Adjustment or Termination Pay Run.

Initialise the pay run then select the employee.

Click on the 'Tax' field in the 'This' column.

Double-click on the 'Tax Adjustment' field.

In the pop-up, select Add Tax or Reduce Tax as appropriate.

Enter the amount to adjust the calculated tax by and click on OK.

Check that the displayed Tax amount is now what you would like it to be.

Calculating tax on an Adjustment Pay Run

If you perform an Adjustment Pay to process items that were missed on the normal pay (e.g. overtime or a bonus), you may wish to adjust the tax amount.

This is because Adjustment Pays are processed in isolation and do not take into account the earnings already processed on the normal pay when calculating tax.

The tax rate applied on the Adjustment Pay may therefore be lower than that applied to the normal pay and cause the tax amount calculated to be very low or even zero.

Insufficient tax being withheld may result in the employee receiving a lower tax return after the end of the tax year.

To apply the employee's normal marginal rate to the Adjustment Pay, click on the Tax field in the 'Last' column to see the tax information from the previous pay.

The rate in the Factor A field is the employee's normal tax rate.

Click on the Tax field in the 'This' column to see the Gross Taxable amount on the current Adjustment Pay.

Multiply the rate in step 1 by the amount in step 2 to get the correct tax amount for the current Adjustment Pay.

If the calculated amount is different to the figure shown in the Tax field on the current Adjustment Pay, double-click on the Tax Adjustment field and add or subtract the difference so that the figure in the Tax field matches what you calculated.

Notice of withholding variation

If the ATO sends you a "Notice of withholding variation" advising you to vary the withholding rate to x% of gross payments for a particular employee, you will need to create a custom tax scale for that employee.

Deduct Extra Tax for an Employee

Sometimes an employee will ask an employer to deduct extra tax so that they get a return from the ATO at the end of the tax year. For instructions, please see Deductions.