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Business Tax Tip – Tax on Bonus, Commissions, Back Pay etc
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Published on Thursday, 09 March 2023 16:43
If you make a payment of salary or wages which is also :
- A back payment (including lump sum payments in arrears);
- A commission;
- A bonus or similar payment such as leave loading when not taking leave;
- Also compensation, Austudy, and some pensions and other payments.
Note - If you employ individuals under a working holiday makers visa you must use the Tax table for working holiday makers for all payments made to them, including back payments, commissions and bonuses or similar payments.
Here are 2 old tables (no-longer on the ATO site) -
Bonuses
There is PAYG (Pay as you go) tax + super on bonuses which are still income for the employee.
Ordinary Earnings, Overtime, Commissions and other
There is PAYG (Pay as you go) tax as well as super on commissions which are still income for the employee, like ordinary hours, see further down this table.
Calculating the withholding amount
To work out the amount you need to withhold from an additional payment, you must use either Method A or Method B. (click to go to the ATO instructions)
Using Method B is more complex but produces a withholding amount that more closely approximates the actual tax payable.
Calculations made using either method are acceptable to work out the withholding amount. If your calculation using either method results in a negative amount, treat the result as nil.
Basically, the methods separate the ordinary earnings and the tax on that, and add the AVERAGE additional over a year to get a new Gross to calculate tax on.
You ADD up all the total bonuses/commissions and DIVIDE that by the usual pay period, eg weekly (averages the additional payment over a year), add that too the ordinary, see what the tax is, work out the difference to the ordinary tax, and check the difference is not more than 47% of the additional payment.
Other payments and tax and super:
- For all the tax tables (can download a PDF version to keep on your PC desktop) see ATO Tax Tables page scroll down to the Regular Payments and choose weekly, fortnightly etc. Note at the top and bottom of the page there is also a link to the handy Tax Calculator they supply online;
- Contractors may require tax and super to be paid – be careful – See Contractor Checklist;
- For amounts/payment that you do not pay tax on, see Amounts you do not pay tax on;
- For Super calculations see ATO Superannuation guarantee contributions calculator.
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