TAX QUERY REPORT
It is an acknowledged fact that most queries received from employees in connection with their pay relates to the amount of tax deducted. Nobody likes paying tax, and employees often query why their tax is so high.
We have taken this problem seriously, and designed a report which is unequalled in the payroll industry, a sample of which is reproduced below. This report takes into account, and displays, everything that can affect a tax calculation. Because there are three different methods of tax calculation allowed for in the system, each using a different (but reasonable) basis for estimating the annual income on which tax calculations are based, the method used for the employee and the resulting factor used for annualising purposes is clearly shown.
As a matter of interest, the three methods of tax calculation allowed in nuQ are:
- Non-cumulative – the earnings for the current period are used in isolation, without reference to previous earnings in the tax year, and it is assumed that the employee will continue earning the same amount each pay period in the tax year. The annual tax calculated on the assumed annual earnings is then divided by the number of pay periods in the year, to arrive at the tax due for the current period. This is the method used to produce the MRA deduction tables.Using this method almost invariably (unless the employee’s earnings do not fluctuate at all) means that at the end of the tax year too much tax has been deducted, and it is necessary to do a final tax calculation (as specified by MRA ) to calculate the correct tax that should have been deducted for the year. If the employee is a SITE only employee, the over-deduction of tax can be refunded to the employee, but if over the SITE limit no refund may be made, and the best that can be done is to deduct no tax in the last pay period of the year.
- Cumulative, forecast on current earnings – this method is suitable for employees whose earnings do not fluctuate much each pay period, and should be used for employees on a fixed salary. It will ensure that from the time an increase is received, the same amount of tax will be deducted in all future periods. To estimate annual earnings, the actual earnings for the current pay period are multiplied by the number of pay periods left in the year, and to this total is added the actual earnings to date for the tax year. The annual tax that will be due on these annual earnings is calculated, and the tax paid to date is subtracted. The balance of tax due is then divided by the number of pay periods remaining in the year (including the current pay period), to give the tax for the pay period. At the end of the tax year, no special calculation as required, as the tax deducted for the year will be the correct amount.
- Cumulative, forecast on year to date earnings – this method is suitable for employees whose earnings fluctuate greatly from pay period to pay period – such as commission earners and persons who work varying amounts of overtime. To estimate annual earnings, the year to date earnings are multiplied by the number of pay periods in the year and divided by the number of pay periods to date. The annual tax that will be due on these annual earnings is calculated, and then multiplied by the number of pay periods to date and divided by the number of pay periods in the year. The result is the amount of tax attributable to the year to date earnings. From this is deducted the tax paid to date, giving the tax for the current pay period.
It should be noted that the Malawian tax authorities accept that all three methods result in a “correct” tax calculation for a pay period, even though the amount of tax calculated by each may be different. All three methods result in the same amount of tax being deducted for the whole tax year – it is only the spread of this total over each pay period which will be different.
nuQ users are encouraged to specify the most appropriate method of tax calculation for each employee, to ensure less tax queries. But if a tax query is received, the Tax Query Report ensures that it is easily answered!
We are very proud of this report, which has no equal in the industry.