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How to set up a non cash taxable fringe benefit for payroll in Canada. I understand there is a workaround. I need the step by step instructions.

 
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How to set up a non cash taxable fringe benefit for payroll in Canada. I understand there is a workaround. I need the step by step instructions.

Hello Shelly.wilsonair,

You can record a non-cash taxable fringe benefit in QuickBooks Online Payroll by pairing an additional pay type with an after tax deduction. Here's how that process works.

First, create the additional pay type. The pay type you choose will determine how the benefit is taxed and recorded on the T4, so I recommend checking out the taxability of pay types article at the end of this post to help you make your choice. To add a pay type:

  1. In the left navigation bar, click Employees.
  2. Click the employee's name.
  3. Click Edit employee.
  4. Under How much do you pay this employee? click Add additional pay types if you haven't selected any other pay types, or click the pencil icon if you have.
  5. Select the pay type you want to add.
  6. If you click the pencil icon next to the pay type, you can rename it to how you want it to appear on the cheque.
  7. Click Done.

Now add the deduction. The deduction offsets the additional pay so the benefit is recorded and taxed, but your employee doesn't receive cash for it. To add a deduction:

  1. In the left navigation bar, click Employees.
  2. Click the employee's name.
  3. Click Edit employee.
  4. Under Does this employee have any deductions?, click Add a new deduction.
  5. Click the Deduction/contribution drop-down arrow and select New deduction/contribution. If you don't see the Deduction/contribution drop-down arrow, go to the next step.
  6. In the Deduction/contribution type drop-down, select Other deductions.
  7. Choose Other after tax deductions as the Type.
  8. Enter the required information about the deduction, then click OK.

You're now set to run payroll with the fringe benefit. If this is a one-time thing for the employee, remember to go back into their settings afterward and remove the deduction.

The custom deduction will always debit a liability account based on the accounting preferences in your payroll settings. You will need to create a transaction outside of payroll to represent distributing the benefit, then credit this liability account to maintain accounting accuracy.

One way to do this is to create an Expense. When you fill out the transaction, set the Bank/Credit account to the account you used to fund the benefit. Then, add the liability account to the line item under the Account column.

To find out which liability account to use, check your payroll settings. Here's how:

  1. Go to the Gear icon and select Payroll Settings.
  2. Click on Accounting under Preferences.
  3. The liability account will be listed in the Other Liability & Asset Accounts section next to the name of the deduction.

Let me know if you need anything else!

Sharon


How different pay types and deductions affect taxes and T4's: https://community.intuit.com/articles/1278212