Bonus Payroll and before tax dedns

[barbola]

Using Canadian Payroll 7.50 with Great Plains (no HR). Employees who get a bonus sometimes request that we put it into an RRSP. We have a group plan therefore it is a before-tax deduction.

It doesn't seem to work. If the employee gets regular pay of 1000 and a bonus of 3000, we enter an RRSP deduction of 3000 and let the EI and CPP come off the 1000. The taxes should only calculate on 1000, but the system is taking over 800 in tax.

Anyone else have problems with tax on bonuses?

Thanks!
Barb E.

 

[stef315]

I've never used Canadian Payroll and I'm not sure of some of those abbreviations.

Are you saying you have a bonus paycode and then a tax sheltered deduction for the same amount? The RRSP is sheltered from tax? Is EI and CPP local taxes?

Um, maybe I shouldn't try to help since I don't know Canadian Payroll. lol, sorry.

 

[BigBurcie]

Just to keep this moving, RRSP stands for Registered Retirement Savings Plan, which I believe is almost equivalent to 401k in the US. It is a tax sheltering plan, that saves you a huge amount on your income tax (mainly a larger return).

EI is Employment insurance (or unemployment insurance) and CPP is Canada Pension Plan, the national pension for anyone over 60. These and several other items are mandatory deductions for any employees in Canada.

 

[stef315]

So, RRSP is setup as a tax sheltered deduction. EI is that setup under unemployment tax? CPP setup under local tax?

Something to check is on the paycode itself. What is the frequency? If this is an annual bonus make sure the frequency is annual otherwise it will calculate the employee as having higher annual wages. For instance, if it's setup as Daily the system will calculate taxes based on this person receiving $3000 per day!

 

[barbola]

I don't think the paycode frequency matters because it is a tax-sheltered deduction. If the bonus amount is 3000 and the tax-sheltered deduction is 3000, then tax should be calculated on $0.



Thanks!
Barb E.