Including PAYE tax on Employee Share Scheme component in a regular pay

Legacy KB ID: 5530

Question

How do I withhold PAYE tax on an employee’s Employee Share Scheme component of their pay?

Answer

Use the new Tax Tracking Type: Employee Share Scheme (ESS) 10.5, 17.5, 30, 33

 

The Issue

New Zealand employees who are part of an Employee Share Scheme (ESS) are liable to pay PAYE tax.  Previously this was done separately.  From 1 April 2017 employers can report these benefits as “Extra Pay” and choose whether or not to deduct PAYE tax from these benefits.  The value of these benefits must be included on the Employer Monthly Schedule (IR348/EMS).

More information on Employee Share Schemes and recent changes are available at: https://www.ird.govt.nz/news-updates/like-to-know-ess-benefits.html

The 2017 release of Reckon Accounts has been updated to handle these changes.

 

What’s New?

There are new Tax Tracking Types to handle the Employee Share Scheme and Tax Rates, one each for the tax levels 10.5%, 17.5%, 30% and 33%.

 

The process

Create the ESS benefit as a Company Contribution:

1.    The Expense account will be the account your ESS is charged to in your ledgers

2.    The Liability account is the account charged when shares are purchased on behalf of the employee

3.    Select the appropriate Employee Share Scheme (ESS) tax tracking type

(Select tax tracking type of None if you are not withholding PAYE)

4.    In Taxes tick PAYE Tax

5.    Select Gross for Gross vs Net

6.    Untick items in Include payments in contribution

7.    Click Finish to create the ESS item.

.Add this item when needed to the Other Payroll Items section of the Employee’s pay form. 

The amount of this item type will not be added to Gross Salary

The PAYE tax associated with the ESS benefit will be included in the PAYE tax total and will reduce Net Pay.

 

IRD348/EMS

The ESS benefit will be included on the IR348/EMS report to the IRD together with the amount of PAYE withheld.

 

Choosing not to deduct the PAYE on ESS

Where the employer chooses not to deduct the PAYE on the ESS benefit, do not use the ESS tax tracking type on the ESS Company Contribution payroll item.  Use tack tracking type of None. 

Your ESS will still be reported to the IR348/EMS but no PAYE tax for it will be reported. 

 

Need more help?

Ask the Reckon Community at: https://community.reckon.com/reckon.

How did we do?

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