Medicare Surcharge Levy

JudyA

Hopefully just a quick question 😊

We started a new employee who has indicated a 1.5% Medicare Levy Surcharge on their tax file declaration (done through MyGov). When I process the payroll for last week, the tax calculated by RA is just the normal amount of tax from the weekly tax table. I thought it would calculate the 1.5% surcharge. Do I have to do this manually and adjust the tax each time I process the payroll?

I did do a search and @Acctd4 suggests that the surcharge tick box is just for reference and so maybe I just tax as per normal? Can you, or someone else, confirm this Shaz? I've entered the tax code as 2-TFT

I did check with the new employee and they confirm it was ticked intentionally (no private health insurance and over 30).

Thanks

Acctd4

Hi Judy

They may have selected it but are they aware of what this actually is though ?

The MLS isn’t related to age. It applies if the employee (or family, if partnered) income is over the threshold & they (all) don’t have any private health hospital coverage.

The applicable % is determined by the income bracket they fall into.

I’ve not yet encountered anyone who has selected it but it was apparently advised as being an information-only selection (which seems odd as - like you - I would have also expected it to calculate the additional % if selected 🤔)

Unless - like HECS/HELP - it only kicks in once the annualised calculation reaches the threshold amount 🤔🤔🤔

@Rav are you able to clarify if this is the case ?

JudyA

Hey Shaz, thanks for your quick reply.

Yes, he knew what he was ticking and said he had to pay it in the past.

I've tried to clarify with the ATO what I need to do in this instance, but they aren't taking calls. My accountant has suggested that I will need to calculate the tax manually if RA doesn't do it for me, so that he doesn't have an unexpected tax bill come lodgment time.

I would have thought RA would calculate it if ticked, but there is no tax code for it, unlike for the Medicare Levy reductions. If it was like HECS/HELP and only kick in after a certain threshold, that wouldn't cover someone like him only working part of a year, nor would it factor in the weeks where it wasn't paid. So, not an ideal scenario.

Acctd4

I’ve just put up a post about it on our Accredited Partners FB page, so will let you know the outcome of that @JudyA ! ☺️

Rav

Hi @JudyA

From my previous conversations with the product teams, all of the new STP Phase 2 fields are for reporting only and don't have any impact on any tax calculations performed within the software.

JudyA

Thanks @Rav for your comments. I decided to become a new employee myself to see what our employees see when they complete the tax file declaration online through myGov. It appears that the Medicare Levy Surcharge is something that they can ask employers to deduct extra tax to cover the payment. See the attached screenshot:

If you tick this box it then goes on to ask further questions. I answered so that I reached the 1.5% surcharge that our new employee has stated in their declaration.

Could you please raise this with the product team, as for now I will have to manually calculate the additional tax? Thanks

Acctd4

@JudyA

I've had confirmation back on my question as per Rav's response above with the added suggestion of entering the additional PAYG to be withheld in the employee record.

This usually works well for a fixed $ amount (entered in Extra Tax) however I've tested it out for the Tax % :

... & disappointingly, it doesn't appear to work (eg it's not calculating any more PAYG than the standard) 😫

This was in the sample file though, with other specifics already set. Can you try adding this in your file then running the employee's next pay & confirm it doesn't work for you either ?

JudyA

Hi Shaz,

I'll certainly give this a go next Monday and let you know what happens. Thanks again for you assistance.

Acctd4

@JudyA

I suspect the Tax % field only works to override the Tax Code selection when 8-NoTaxC is selected (for WHM) so …. my suggestion would be to use the Extra Tax field instead.

Determine the employee’s annual gross income. Calculate 1.5% of this, divide that amount by the number of pay periods in a FY & enter that amount in the Extra Tax field.

This will add that additional amount to the employee’s PAYG Tax calculated each pay. It’s not a perfect solution, but I think it’s the best automated option 😬

JudyA

@Acctd4 Unfortunately this employee is not on a salary and his weekly wages can vary widely depending on how much overtime he works. I run an payroll excel spreadsheet in conjunction with RA payroll due to the number of different allowances our employees receive and the complexity of the pays. I have set up the spreadsheet to calculate the extra tax each week, so I'll use that to adjust the RA tax figure manually.

I'll still leave the tax percentage figure in his RA payroll record and see what happens next week, but from what you've said above, it's not looking likely that it will alter the amount.

Thanks again for your help.

JudyA

@Acctd4 You were right Shaz - adding the extra tax percentage to the employee record did not result in extra tax being calculated. I'll have to stick with manually adjusting.

@Rav Could you review my post from August 28 that shows the screenshots from the tax file declaration done online through myGov and discuss with the product team? It does look like that when employees tick that particular box, they are asking for additional tax to be deducted - it's not just a STP2 reporting field. Calculating this manually is not ideal. Thanks

Fiona_8614545

I have exactly the same problem as JudyA.

An employee on a variable wage each week.

It would be very handy if the 1.5% medicare levy surcharge selection box worked.

It would be so nice and easy.