FastTrack360 Version 12 Online Help
Pay Australia > Payee - Ability to flag a payee as subject to Medicare Levy Surcharge (v12.17)
- Fiona Sims
- Max Ciereszko
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 identifies if a payee is subject to a MLS and the surcharge tier that applies.
To cater for this, a new option labelled Medicare Levy Surcharge has been added to the PAYG Tax Details section of the Payroll > Payee > Payee Entry screen, as shown in the example below.
When the Medicare Levy Surcharge option is ticked, a secondary field labelled Surcharge Tier is enabled and it becomes mandatory to select an option from the available list to indicate which surcharge tier applies.
The Medicare Levy Surcharge option is only available if the following apply to the Payee record:
the tax scale is set to Tax Scale 1 or 2
the Medicare Levy Adjustment field is not ticked
the Tax Offset Claimed field is not ticked.
the Seniors and Pensioners Tax Offset field is not ticked.
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, to withhold the correct, additional amount of tax from the payee’s earnings to cover the MLS it is necessary to do the following:
add a deduction to the payee of type Extra Tax to deduct the additional percentage from gross earnings
manually adjusted at the Tax pay batch stage to factor in the additional withholding that applies to the payee, if practical.
We have also provided additional search options to allow you to find payees that have the Medicare Levy Surcharge option applied via the Payroll > Payee > Search > Payroll Details screen. When the option in the Tax Scale field is set to Tax Scale 1 or Tax Scale 2, an MLS filter option is enabled as shown in the example below.
Benefits
If a payee is subject to an MLS and their tax withholding is being manually adjusted to account for the surcharge, this enhancement allows the relevant tax treatment to be reported to the ATO via STP Phase 2 to inform why the tax withholding is higher than what it otherwise would be.
Click here for more information about reporting tax treatment codes in STP Phase 2.
Configuration
On upgrade to V12.17, the Medicare Levy Surcharge option is available and can be enabled in the PAYG Tax Details section of the Payroll > Payee > Payee Entry screen if the payee’s tax scale is set to Tax Scale 1 or 2 and they are not claiming a Medicare levy adjustment (reduction), low income tax offset or a Seniors and Pensioners tax offset.
On enabling the Medicare Levy Surcharge option, the secondary field Surcharge Tier is enabled, and it is mandatory to select which surcharge tier applies.
Note that the Medicare Levy Surcharge option cannot be toggled on or off for a payee validity period that has already been used to pay the payee in a pay batch. Therefore, it may be necessary to add a new validity period to a payee before the Medicare Levy Surcharge option can be toggled on.
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Classification-Public