Pay Group: Select the pay group for which the Tax Allowance flag is being set up. The Pay Group name will show by default.

For each pay group that is entered, there are two flags that may be set:

Use Tax Allowance Breakdown and the Auto Calculate NIS Impact Flags. 

• If the Use Tax Allowance Breakdown flag is not checked the data entered for individual tax allowances using the P…Pay Profile… TA<#> cycle changes is stored but not used.        
• If the Use Tax Allowance Breakdown flag is checked then, for the particular pay group, the system sums the values entered and uses this sum as the value for the Allowable Deductions field.

Auto Calculate NIS Impact: In Trinidad and Tobago, the National Insurance (NIS) tax allowance is usually a value that is declared on the Tax Declaration (TD1) form at the start of the year. For each employee 70% of his projected annual NIS contribution is allowed as a tax allowance.

Assumptions are made with this declaration that the employee will work for all the weeks of the year and fall within a particular NIS class. These assumptions can (independently or not) cause an employee to overpay or underpay tax (PAYE) as the example below shows:

Example:

An employee who earns $5000 per month for each month of the year and falls in Class XII of the NIS Contribution Rate Schedule 2010 should have $1742.83 in tax allowances for NIS:

Earning Class          Mthy Earnings                            Employee’s Weekly Contribution  

XII                            5460.00 -6066.99                        47.88    

Employee’s Annual Contribution(52 weeks)           70% Employee’s Annual NIS Contributions                                                                                                                                          1742.83                                                                        2489.76  

However, if this employee goes on three (3) months no-pay leave, the employee would underpay taxes since the tax allowance would be too high – since the employee did not work for the full 52 weeks of the year.

To avoid such an incident, the system uses the year-to-date YTD NIS values to calculate the allowable deduction for NIS as at any given payroll run (monthly etc.). Therefore, if an employee changes class or does not work, it can be accounted for, that is, reflected by his YTD NIS value.

The tax allowance with respect to NIS is recalculated based on the YTD value of NIS contributions as at the particular pay cycle run. This recalculated value is then summed with the other static tax allowance breakdown values to find a single value for the Allowance Deductions field.

It is important to note that the Allowable Deductions value will change from cycle to cycle as the YTD NIS contributions change if the Auto-Calculate NIS Impact feature is enabled – generally increasing with the accumulating NIS contributions with each cycle.

The Auto-Calculate NIS Impact can only be used when the Use Tax Allowance Breakdown is enabled.

In order for the automatic calculation of the allowed NIS to be calculated accurately, the order of calculations of the Trinidad and Tobago statutory deductions (the order (first, second,third) by which each statutory deduction is calculated and deducted MUST be as follows:

• Order 1: NIS
• Order 2: PAYE
• Order 3: HS

A factor of 70% (0.7) is set for the NIS contribution that is allowable via a system code: TTTAX ALLOWANCE NIS FACTOR (Administration>>System Codes). This may be changed if required.

Project NIS

This flag allows a second option for the NIS calculation, where the YTD value is NOT used in the NIS calculation. This means that the Allowable Deductions value will be constant for each cycle.

If this flag is enabled, the system projects the NIS for the entire year for the employee and then calculates the allowable deduction for NIS as an equal amount for each month. It then adds the total amount that is due (from the first cycle the employee starts paying) to the Personal Allowance.

However, if this employee goes on three (3) months no-pay leave, the employee would underpay taxes since the tax allowance would be too high – since the employee did not work for the full 52 weeks of the year.

It should also be noted that the option is also available (as a business rule) to project the Pension Allowance for those clients who use this method of Tax Calculation.

Enter each item and amount so that the employee can see the items that constitute his/her Tax Allowances rather than one summed figure.

In the event that a change needs to be made, simply change the particular item.