T4

[Kanch]

We need to pay severance pay to an employee. This should report on Box 67 in T4. How should I set up this in QB Desktop version?

[Trish_T]

Hi Kanch,

Welcome to Community.  It's important that you're able to provide severance pay to your staff with confidence.  I'll be happy to guide you through the steps.

Let's get started by creating the payroll item.  Here's how;

1. Click on Lists and select Payroll Item List

2. Open Payroll Item and then New

3. Click on Custom Set Up and hit Next

4. Choose Wage Item and select Next

5. Select Bonus. This allows for a flat amount of pay without requiring hours or a quantity and doesn't interfere with the salary amount.

6. Hit Next. Choose the Expense Account and select Finish

Follow these steps to create a severance pay cheque;

1. Go to Employees and open Pay Employees

2. Select how you want pay the employee.

• Select Unscheduled Payroll if you're paying the employee separate from their scheduled payroll.
• Select Scheduled Payroll if you're including the severance pay in a scheduled payroll for the employee.

3. Checkmark the box on the left side of the employee's name and select Open Paycheck Detail. 

Note; If you're running a scheduled payroll for other employees, make sure you're in the paycheck details of the correct employee. Otherwise, complete the needed adjustment of the current paycheck you have opened and select Save & Next until you get to the paycheck details of the correct employee.

4. In the Earnings section, under the column ITEM NAME, place the Severance pay payroll item.

• If you are paying the severance pay of the employee together with his/her scheduled payroll, make sure to place the severance pay payroll item in the row next to last item in the Earnings section.
• If you are paying the severance pay separately, remove any existing items under the Earnings section before placing the severance pay payroll item.

5. Enter the amount of the pay under RATE.

Note; If you are paying severance on a separate paycheck, adjust federal and/or state withholding taxes as needed.

6. Remove any Other Payroll Items that don't apply

7. Select Save & Close and then Continue

8. Review the details of the paycheck and select Create Paychecks when you're ready.

Please don't hesitate to contact us if you require additional assistance.  It would be our pleasure to work with you directly and ensure you successfully complete your QuickBooks Payroll goals as soon as possible.

If you have any other questions, feel free to reach back out.  We'd be happy to help!

[Kanch]

Thanks Trish for your prompt reply. However,  severance pay in Canada is not subject to EI or CPP. Per CRA, we deduct onky income tax on lump sum method. It should go to to Box 67 in T4, but should not include in box 14 in T4. 

After spending some time, I found out how to set up the severance pay in QB. We need to set up it as as an Addition, then select no CPP and EI and select box 67 for T4. Since QB doesn't allow an option to calculate lump sum taxes, we need to calculate the taxes  manually and then update the taxes manually when paying out.

[Trish_T]

Hi Kanch,

Thank you very much for sharing the information with Community!  This will be of great benefit to others following this thread, including myself.  Sharing is caring and it's greatly appreciated.  Cheers!

[LisaK3]

Thank you so much for your info - it is exactly what I was looking for as I had tried all the other supposed methods that Quickbooks suggested but did not work!! Perhaps Quickbooks needs to add this into their payroll items?!!

Very much appreciate your info!

[Alex M]

Hi there LisaK3,

I can see that this would be a pay type with these specific deductions added in QuickBooks Payroll. I recommend leaving feedback in the system by clicking on the Gear icon, then Feedback. The comments made in that section are taken into consideration by our developers when designing new features for the software.

If you have any other questions, feel free to reach out here.