Tax on Bonuses and Commissions

 

Prerequisites

When some bonuses or commissions are paid to employees, they are relevant to a number of payroll periods, and because of this they can have the tax calculated for them spread over this same number of periods. This reduces the amount of tax that the employee has to pay on the bonus.

To be able to spread the tax for a bonus payment across a number of pay periods, the bonus must be paid against a wage type that is set up for marginal (bonus) tax.

When paying a bonus payment where the tax is to be spread across more than one period, the bonus payment must be entered into infotype 0014 (Recurring benefits and deductions). The number of periods across which to spread the tax is entered in the Interval field.

 

The from and to dates of the infotype must correspond with the date of the payroll period in which you wish to pay the bonus. If the date goes across more than one period then the payment can end up being paid more than once.

Procedure

  1. The number of periods across which to tax the payment is determined from the Interval field of the bonus payment in infotype 0014.
  2. The bonus amount is divided by the number of periods.
  3. The resulting amount is added to the normal taxable gross for the period, not including the bonus.
  4. This amount is then taxed according to the employee’s tax scale.
  5. The tax calculated for the normal taxable gross, without the bonus, is subtracted from the tax calculated in step 4.
  6. The resulting tax value is then multiplied by the number of periods determined in step 1, giving the amount of tax for the bonus payment.

See also:

Creating a Bonus Payment with Marginal Tax