Tax Free Earning Item - Gross Payments Don't Appear

WDPS
WDPS Member Posts: 1

I have a single employee earning less than the tax-free threshold. Because the "Ordinary" earning item results in tax being deducted, I created a new earning item and set the Calculation method (under the Tax applicable checkbox) to Tax Free.

Although no tax is deducted, each Pay run summary where this earning item is used shows $0 Gross earnings (and this is also being reported through STP).

Should I be doing something differently? I realise I can use the Ordinary earning item and manually edit teh Tax witheld (with a custom tax withheld amount) but is there an easier way?


Comments

  • Rav
    Rav Administrator Posts: 12,788 Community Manager Community Manager

    Hi @WDPS

    Gross earnings will only be included in the Pay Summary, EOFY finalisation and STP submissions if they are tax applicable as that is part of the STP requirements.

    To accurately submit earnings to the ATO via STP you must use an earnings item that is tax applicable. As you've mentioned you have a requirement to remove the tax component for this employee and to do so you'll need to manually override tax to $0.00. The earnings item itself must be designated as tax applicable so its subject to STP reporting, the default Ordinary earnings item falls under this or you can create a custom earnings item if you wish as well but it must be set to tax applicable for gross payments.

    I've created a quick screen recording below as well which outlines how you can override tax.


  • swakhlu01 .
    swakhlu01 . Member Posts: 448 Payroll App Expert Payroll App Expert

    @Rav just curious in that case why would Payroll app offer a feature to create a customised Earnings category where tax is NIL if this is not eligible for STP reporting. I think this is the option that @WDPS applied.

  • Rav
    Rav Administrator Posts: 12,788 Community Manager Community Manager

    Its a good question @swakhlu01 ., essentially we have to offer the ability to create pay items that are configurable/customisable. For example, certain items such as allowances are tax-free to a certain point and need to be configured as such for the app to perform relevant calculations at the core layer.

    While I'm not an accountant so I can't say there are use cases where an earnings item itself will require it to be tax-free from the outset but I've asked my devs to get some feedback around the design aspect. I'm not sure if its something we can lock down as its part of the toolset during pay item creation but perhaps something to explore in the future.


    (Just a note, when creating a custom earnings item the tax applicable option is selected by default)