Withholding tax calculation is wrong

m_ca

Hi, I am having an issue with the latest Reckon Payroll app where the Withholding Tax calculation is higher than what the ATO calculator tool https://www.ato.gov.au/Calculators-and-tools/Tax-withheld-calculator/ says it should be.

I do not have a Premium subscription for the software. The only earning items that have an auto tax calculation as far as I can see are those that are in the "Normal earning items" category, so that is what I am using. I tried it with the "Ordinary" earnings item and I also tried setting up my own one one called "SAW (Salary and Wages)", which is the Income Type I understand the ATO requires for normal wages in STP phase 2 (is everyone else doing that too?...I digress but let me know if I misunderstood!).

These "Normal earning items" have an hourly rate (fixed salary type is not available) and the "Tax applicable" and "Include in super guarantee calculation" both ticked. There are no other options available in the item setups.

The employee is setup as a full-time employee with a 38 hour week, so when creating the pay run I enter 38 hours for a 5 day working week and convert the weekly salary to an hourly pay-rate (weekly salary / 38 hours) for the hours.

The weekly salary calculates correctly using the hours and pay-rate, the Super amount calculates correctly using 10.5%, it's just the withholding tax amount that is wrong. I know I can override it and manually enter the amount, but it would be good if I could exclude having to perform this step.

Can someone please advise why the tax amount calculates could be wrong and how to fix it? if you need any more specific info on my payrun e.g. the exact amounts and amounts calculated by the app, please send me a private message. Many thanks

Rav

Hi @m_cantafio

Can you provide details of a specific pay run you're entering into the Payroll App including screenshots (blank out any sensitive info eg. employee names etc) showing what the app is calculating for tax VS what you expect the tax to be.

m_ca

Hi Rav, thanks for helping. I’d rather do privately but that’s fine … here you go….

weekly salary $3,660

reckon tax calc: $1,322

ATO tax calc: $1,157

screenshot…..

swakhlu01 .

@m_cantafio I tried the same amounts as your example and got the same tax calculation in Payroll App as the ATO for weekly payment. Please check what is the version number of your Payroll App. This can be checked under settings and scrolling to bottom of page.

m_ca

Hi Raj, it was version 2.18.9. I have just updated it now to 2.24.45, signed back into the app and tried again, I deleted the oayfyn, created a completely new one and entered the details and it still gives me the same results ….. am I not seeing something correctly ? According to the ATO tool, Tax should be $1157 correct? Here’s screenshots ….

Rav

Hi @m_cantafio

The cause of this will be what pay frequency you have set the employee up with. You've mentioned above that the pay run is weekly however I'm picking that this employee has been designated a fortnightly pay frequency hence why there are different tax tables at work.

Check the employee's profile and check their employment details. I've made a quick screen recording as an example below -

m_ca

Hi Rav, thanks for the screen recording... unfortunately it is set to weekly. Std Hours 38, standard days 5, frequency is weekly.

Rav

Ok, what is the pay date and pay period that you've entered for this particular pay run?

m_ca

Pay date is 22 July, 2022, Pay period is 16-22 July for this particular run.

Rav

Ok, here's a couple of test pay runs I've just created in my own account using as much of the same parameters as yours.

Pay Run 1

Pay date 22 July

Pay Period 16 - 22 June

Full time employee, 38 hours per week, TFT not claimed

Employee has Fortnightly pay frequency. Pay run is created for a 5 day period.

Pay Run 2

Pay date 22 July

Pay Period 16 - 22 June

Full time employee, 38 hours per week, TFT not claimed

Employee has Weekly pay frequency. Pay run is created for a 5 day period.

m_ca

HI Rav, ok the difference is that when I use the ATO tool, I leave it on the default "TFT Claimed" = yes, which gives me a weekly tax result of $1,157 not $1,322.

Why does Reckon assume the employees will not claim the tax free threshold, and is this a setting somewhere that can be toggled? All Australian residents may claim it, meaning the first $18,200 of pay is not taxed, therefore weekly withholding tax should be lower - $1,157 (instead of $1,322 if they weren't claiming it).

Rav

Glad you got to the bottom of it @m_cantafio

The app isn't make an assumption however, its performing calculations based on the parameters set by the user. In the case of the tax scale, the option is selected/designated to the employee when they're created which you'll find in their profile. Example below -

m_ca

Awesome that’s great, we’ve solved it. Yes the employee record was set up as Scalr 1. I have changed to scale 2 - threshold claimed and the calculation is as I require.

Thanks so much for your help.