Navigation:  e-PayDay® for Windows > Taxation > Tax Averaging > Tax averaging period to date, progressive basis

 

Tax averaging period to date, progressive basis is recommended for bonuses and commissions that are relatively frequent and occur a number of times throughout the financial year. Examples include commissions for salesmen, real estate agents etc.

 

Setting up the pay rate

 

A bonus / commission, in e-PayDay®, is always set up as a pay rate, an example of which is below

 

       

 

Apart from the 'Type' field saying "Pay Rate", the only other essential field to address is 'Pay Rate Type'

 

This can be either of two things

 

Bonus (Tax Averaged Period to Date, Progressive Basis)

OR

Commission (Tax Averaged Period to Date, Progressive Basis)

 

Both apply tax in exactly the same way, so choose the one that is more appropriate. The latter option is used in the example above, because this is a commission for a salesman.

 

The 'Value' field is left blank as the amount of the commission will vary from one time to the next.

 

All other fields can be addressed by the user at their own preference. See Adding a Pay Rate

 

 

The Steps to Calculate Tax Average Period to Date Progressive basis

 

The progressive method of calculating the withholding amount from payments of commissions provides a more accurate withholding amount when considered in respect of the payee's overall annual liability.  However, it requires more payee information and a more involved calculation:

You will need to know…

The financial Year-to-Date Income, the  tax paid Year-to-Date, Salary Sacrifice Non-Taxable Allowances & CDEP Payments. Also, the number of Regular Pay Periods this year and the relevant tax scale/table for the employee.

 

Add this week's Gross Income (including the bonus/commission) to the Gross Income YTD.  Include previous commission payments but subtract any Salary Sacrifice, Non-Taxable allowances and CDEP payments.

 

 

Divide the total amount from step 1 by the number of regular pay periods for the year to date.

 

Use the tax tables to determine the amount to withhold from the amount in step 2.

 

Multiply the amount withheld in step 3 by the number of pay periods in the year to date.

 

Subtract the amount already withheld in the year to date (as per the payee's wages records) from the amount calculated in step 4.

 

The result is the amount that should be withheld from the commission payment.  If the resulting amount is less than zero, there is no amount to withhold from the commission payment.

 

 

 

Worked Example - Progressive method

Bob receives a gross weekly wage of $300 (from which $34 is withheld) working as a salesperson in a discount store.

As part of his salary agreement, Bob can earn commission payments, paid at irregular intervals, for achieving pre-agreed sales targets. Just prior to Christmas, Bob is being paid a commission amount of $1,000 due to his excellent sales.  Earlier in this financial year, Bob was also paid a commission amount of $900 gross (with $215.00 withheld) 10 weeks earlier (pay week 15). Total regular pay periods this year is 25 and Bob is not entitled to leave loading.

 

Current commission = $1000

Previous commission paid year to date = $ 900

Other payments paid year to date ($300 × 25 weeks) = $7500

Gross Payments  = $9400

 

$9400 ÷ 25

Average Weekly Gross= $ 376

 

Amount withheld on averaged weekly earnings $376 = $ 51.00 (using PAYG Tax Scale 2)

 

$51.00 × 25

Tax Paid year to date = $1275.00

 

Tax Paid year to date = $1275.00

Less amount withheld from weekly wages of $300 = $ 850.00 ($34 × 25)

Less amount withheld from commission (pay 15) = $ 215.00

Therefore the amount withheld from current commission = $ 210.00