The bonus method of calculating income tax is used when the payment to your employee: We use this method to calculate the amount of income tax to deduct from “out of the ordinary payments” because this method will result in a tax deduction that better approximates the amount of tax the individual will owe on the employment income when filing his or her personal income tax return. In our last presentation – “How payroll works”, we introduced the payroll cycle. Log in Register. They will receive a refund of the extra income tax. Please note that there is a slight discrepancy, $20 in this situation, if you were to use the PDOC. At the bottom of the results page, you have the option to print an employer remittance summary. Remember to calculate the deductions, you can either use: PDOC, provincial or territorial tax tables, or manual calculation for CPP and EI. This might seem severe but these are trust funds that you deducted from your employees and we have to make sure you remit them on time. This is the income tax that you would deduct from the bonus. We used the ‘regular’ method of calculating deductions. Create your account. © copyright 2003-2020 Study.com. As you can see, the employer has to calculate the gross pay of an employee, and then figure out the amounts to withhold, which are - the Canada Pension Plan contributions, Employment Insurance premiums and income tax, so they can calculate the employee’s net pay. Let’s look at a visual example of how to calculate the amount of tax to deduct from bonus. Anyone using their own payroll program will not have to do this manual calculation but it is still nice to know how the tax is calculated. The net amount Mary would receive in this pay period would be $2,004.99. 5. Payroll and GST accounts will be reviewed quarterly to ensure the new employer continues to be eligible. The bonus method and lump-sum rates seem to cause the most confusion. Make the cheque or money order payable to the Receiver General. You can register an account with the CRA using 3 different options: You will have to have some personal and business information handy to complete the application process. Deductions are to be made using the bonus and retroactive pay increases method. | It is $22.15. TAGS Accounting, Summary, Accounting For Partnerships, Bonus Method, Goodwill Calculation, Goodwill Method, Bonus Method Vs GoodwillMethod, Generally Accepted Accounting Principles, partner, new partner. This is because the payroll tables use a range of earnings whereas the PDOC is able to calculate a more exact amount. Now this slide shows you the summary of Mary’s pay and deductions for this pay period. Employers have to remit these amounts to the CRA on a regular basis. They fall under the ‘accelerated’ remitter category and their due dates can be sooner after the end of their pay period. Consider paying online. Employers pay vacation pay to their employees, and the employees may take their holidays or, they can decide not to take their holidays and cash-in their vacation pay. To register or to read more about what you can do on My BA go to the CRA website. Read this article to learn about the important methods of valuing goodwill of a company! To calculate income tax on the vacation pay, the employer must use the ‘bonus method’. Services, Working Scholars® Bringing Tuition-Free College to the Community. The bonus method is used to grant a new partner additional capital in a partnership when the person is adding goodwill or some other intangible asset to the partnership. However, they’re deducted in different amounts than usual. This puts an extra $390.65 in your employee’s hands up front. The CRA will let new employers know if they can remit quarterly when we send the employer their first remittance form. You have up-to-the-minute information and transactions processed immediately. You can use online payment methods such as: There are also other payment methods such as: Something to think about here is that, making your remittances has never been easier. Lump-sum payments are yet another type of payment that an employer may pay employees. In Step 3, the provincial tax to deduct, do the same thing you did for the Federal income tax calculation in the previous slide, but use the provincial tables now. If you were to put Mary’s information in PDOC, this is what it would look like. As of this year, you can use PDOC to calculate how much income tax to deduct. Now that you have registered for your payroll account let us talk more about how and when to remit. The difference between the investment of the new partner and the book value of the capital is called the Bonus and is distributed among the existing partners. Today, we will build on the last presentation by showing you different ways for calculating source deductions depending on the type of payment you make to your employees. Remember we pay haven’t actually deducted any income tax yet. Full Goodwill Method vs Partial Goodwill Method. Therefore, combine all lump-sum payments that have been or are expected to be paid in the calendar year when determining the composite rate to use.