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I need to generate a bonus that has no tax deducted from it. How would I do this?

I need to generate a bonus cheque for one of my employee's that is to be issued tax free.  I have a Request to Reduce Tax Deductions at Source form for CRA and the amount is going directly to a RRSP.  How do I generate this bonus cheque.

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Best answer 03-11-2019

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Hello, Laurel! You can use the Reimbursement pay type to...

Hello, Laurel!

You can use the Reimbursement pay type to pay an employee without withholding taxes. Here's how to to do this:

  1. In the left navigation bar, click Employees.
  2. Click the employee's name and hit Edit employee.
  3. 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 .
  4. Check the box next to Reimbursement.
  5. You can edit the description that appears on the cheque by clicking the pencil icon.
  6. Click Done.

When you run payroll, you'll have an additional box for the new pay type. Any amount entered in that box will not be taxed.

However, you mentioned that the funds will be sent to a Registered Retirement Savings Plan. If so, you might want to consider adding a deduction to the cheque so the money isn't recorded as going directly to the employee.

When you run payroll, enter the the full, non-taxable amount in the Reimbursement box, then enter the same amount for the deduction. This will create a net zero cheque, and the funds will be held in a liability account.

When you pay the RRSP, you can record the expense against the liability account to balance your books. If you're not sure whether you should use the deduction, I recommend contacting an accountant.

You can find instructions here for how to set up a deduction: https://community.intuit.com/articles/1433855-set-up-employee-deductions-and-company-contributions.

For more information on which pay types are taxable, check out this article: https://community.intuit.com/articles/1278212-payroll-taxability-of-deductions-and-pay-types-canada-....

Feel free to reach out to me if you have more questions!

Sharon

View solution in original post

1 Comment
Not applicable

Hello, Laurel! You can use the Reimbursement pay type to...

Hello, Laurel!

You can use the Reimbursement pay type to pay an employee without withholding taxes. Here's how to to do this:

  1. In the left navigation bar, click Employees.
  2. Click the employee's name and hit Edit employee.
  3. 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 .
  4. Check the box next to Reimbursement.
  5. You can edit the description that appears on the cheque by clicking the pencil icon.
  6. Click Done.

When you run payroll, you'll have an additional box for the new pay type. Any amount entered in that box will not be taxed.

However, you mentioned that the funds will be sent to a Registered Retirement Savings Plan. If so, you might want to consider adding a deduction to the cheque so the money isn't recorded as going directly to the employee.

When you run payroll, enter the the full, non-taxable amount in the Reimbursement box, then enter the same amount for the deduction. This will create a net zero cheque, and the funds will be held in a liability account.

When you pay the RRSP, you can record the expense against the liability account to balance your books. If you're not sure whether you should use the deduction, I recommend contacting an accountant.

You can find instructions here for how to set up a deduction: https://community.intuit.com/articles/1433855-set-up-employee-deductions-and-company-contributions.

For more information on which pay types are taxable, check out this article: https://community.intuit.com/articles/1278212-payroll-taxability-of-deductions-and-pay-types-canada-....

Feel free to reach out to me if you have more questions!

Sharon

View solution in original post