Description
A payee can submit a Medicare levy variation declaration to request that their employer withholds an additional amount of tax from their earnings to cover their Medicare levy surcharge (MLS) liability. This prevents the payee from potentially having to pay more tax at the end of the financial year to cover the Medicare levy surcharge.
There are three different surcharge tiers available, whereby a different percentage applies to each tier. The current percentages are as follows:
Tier 1 – 1%
Tier 2 – 1.25%
Tier 3 – 1.5%
Under STP Phase 2 it is a requirement to report a tax treatment code that, among other things, identifies if a payee is subject to an MLS and the surcharge tier that applies. Therefore, if a payee’s tax is being adjusted to withhold an additional amount to cover their Medicare levy liability, the payee can be flagged as being subject to the MLS and the relevant surcharge tier can be recorded on the Payee record.
Flagging a payee as being subject to MLS allows FastTrack360 to automatically report the relevant tax treatment code to the ATO via STP reporting to indicate that the payee has requested additional tax to be withheld to cover their Medicare levy liability.
However, it is important to note that FastTrack360 will not calculate and apply the additional tax to the payee’s tax withholding automatically when tax is calculated at the Tax pay batch stage. Therefore, the Medicare Levy Surcharge option should only be enabled if tax is being manually adjusted at the Tax pay batch stage to factor in the surcharge tier that applies to the payee.
The new fields available in the PAYG Tax Details section of the Payee Record include:
Field | Description | Details |
Medicare Levy Surcharge | If ticked, indicates that the payee is subject to a Medicare levy Surcharge. Used to populate the relevant tax treatment code in the STP payload. |
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Surcharge Tier | Indicates the surcharge tier that applies to the payee. Used to populate the relevant tax treatment code in the STP payload. |
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On upgrade to v12.17 in the Payee Record’s PAYG Tax Details section we have added a new sub-section headers for:
Medicare Levy Adjustment Details (existing setting)
Tax Offset Details (existing setting)
Medicare Levy Surcharge Details (new settings for v12.17)
We have also provided additional search options to allow you to find Payees that have the ‘Medicare Levy Surcharge' settings applied via the Search Payee > Payroll Details Tab, Tax Details section.
To apply the ‘Medicare Levy Surcharge’ filter, open the Tax Details section and set the ‘Tax Scale’ to either ‘Tax Scale 1' or ‘Tax Scale 2’. You can then select the ‘MLS’ (Medicare Levy Surcharge) filter required from:
Any (default)
Yes
No
Benefits
This enhancement provides an agency with the ability to flag payees who have requested an additional amount to be withheld from their earnings towards covering the MLS so that the correct tax treatment can be reported through STP Phase 2 reporting.
Configuration
On upgrade to v12.17 where an existing payee qualifies as requiring the application of the Medicare Levy Surcharge, the existing Payee record can be updated as follows:
Tax Status must be either Tax scale is Tax Scale 1 or Tax Scale 2.
Tick Medicare Levy Surcharge.
Select the applicable Surcharge Tier.
As advised above, this will meet the reporting requirements for STP Phase 2, however application of the surcharge needs to be manually calculated and applied via an Adjustment Pay Batch.