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Calculate and apply withholding amounts on lump sum payments using Method A and B (ii)

by Intuit Updated 8 months ago

This article will guide you on the methods available for calculating the withholding amount (PAYG and STSL) on a lump sum payment when using either:

  • Method A: this method calculates withholding by apportioning additional payments made in the current pay period over the number of pay periods in a financial year, and applying that average amount to the gross earnings in the current pay period.
  • Method B (ii): this method calculates withholding by averaging all additional payments made in the current financial year over the number of pay periods in a financial year, and applying that to the average total earnings to date.

Before you start

Quickbooks Payroll powered by Employment Hero will calculate this amount for you automatically.

However, if you want to learn more, you can read the guide on manually calculating this amount by the Australian Taxation Office (ATO) standards:

  1. Manually calculate withholdings on lump sum payments using Method A
  2. Manually calculate withholdings on lump sum payments using Method B (ii)

Furthermore, if you need help on deciding which method to use, you should contact your Accountant. If you don't have an accountant, we can help you find a ProAdvisor.

Process a payment for an employee in a pay run

To process a lump sum payment for an employee in a pay run using this method, follow these steps.

  1. Go to Payroll and select New Pay Run
  2. Select the employee's name.
  3. Select Actions
  4. Select Add Lump Sum Payment.
  5. Select the pay category.
  6. Ensure the correct location is selected.
  7. Enter any notes if applicable (optional).
  8. Enter the unit(s) if it differs to the default value of '1'.
  9. Enter the lump sum rate/amount.
  10. Select Method A or Method B (ii) from the calculation method dropdown.
  11. Select Save.

Once you save the employee's pay, a tooltip will appear to the right of the Method A or Method B (ii) label. Clicking the tooltip will open a context panel containing details of how the withholding amount has been calculated.

QuickBooks Online Payroll AdvancedQuickBooks Online Payroll Standard

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