Tax Codes for Employees

[nshmakov]

hi guys,

We are new to Payroll as we were operating as a Sole Traders up intil last month when we incorporated into the Company.

We setup up ourselves as the employees (don't know if we should though). The following is the Taxes page / Tax codes associated with the employees and we don't know which one to use:

Looking forward to hearing from you,

Regards,

Nick

[Graham QBHelp]

Hi Nick

For most employees, the relevant tax table depends on two factors:
- the answer to Q8 on the employee's Tax File Number Declaration "Do you want to claim the tax-free threshold from this employer?"
- whether the employee gets paid leave loading

If the employee doesn't claim the Tax Free Threshold, usually because this is their 2nd job, then select QB Tax Code 1-NoTFT

If the employee claims the Tax Free Threshold (the normal situation), you need to consider whether they get paid leave loading. If yes, then select QB Tax Code 2-TFT. If no leave loading is paid, then select 7-NoLL

Graham QB Help

[jason_b9]

Hi Graham,

Re tax codes for employees.

Is there anywhere that defines each of those codes 1 - 8? We have just recently had a employee start who receives the senior tax offset and I don't know which code to apply to her.

Thanks

Jason

[admin]

Hi Jason

1 through 7 mirror the tax scales the ATO use:

Scale 1 Where tax-free threshold NOT claimed in Tax file number declaration
Scale 2 Where payee is eligible to receive leave loading and has claimed tax-free threshold
Scale 3 Foreign residents
Scale 4 Where tax file number not provided by payee
Scale 5 Where payee claimed FULL exemption from Medicare levy in Medicare levy variation declaration
Scale 6 Where payee claimed HALF exemption from Medicare levy in Medicare levy variation declaration
Scale 7 Where payee not eligible to receive leave loading and has claimed tax-free threshold

Most common ones are:

Scale 1 - if an employee has 2 jobs, they will claim the Tax Free Threshold (first $6000 of income is tax free) in their primary job (Tax Scale 2 or 7) and then NOT claim the TFT in their secondary job (Tax Scale 1). Under Tax Scale 1, every dollar earned is taxed. Under Scales 2 and 7, the first $200 per week are not taxed.

Scale 2 - Normal Tax. Employee earns Leave Loading. Leave Loading is normally not taxed on payment, so this scale adds about $2 a week to tax to cover the tax on leave loading.

Scale 7 - Normal Tax but employee doesn't get leave loading.

Scales 3 to 6 - as per above.

Scale 8 - Used for horticultural workers where a flat % rate is taken out. For a flat 13% select Tax Scale 8-NoTaxC AND enter 13% in the Tax % Box. Also used for ABN contactors paid through payroll system where no tax is deducted (0% in Tax % Box).

Graham
QuickBooksHelp.com.au