Bonus Included with Regular Earnings

When bonus is included with Regular Earnings (annualized tax method), in addition to the 3 Calculation Steps outlined, the first 2 Steps are to calculate pay period income taxes on the Regular Earnings using the Annualized Tax Method.

Calculation Step 1 – Determine annual taxes payable by annualizing the Regular Earnings.

• Calculation Input - The following will derive annual taxable gross: Regular Earnings X total pay periods in the year.

• Calculation Output - Perform the annualized tax calculation to produce the annual income taxes.

Calculation Step 2 - Determine pay period income taxes for the Regular Earnings.

• Calculation Input - The following will derive pay period income taxes: Annual income taxes (from Step 1) / total pay periods in the year.

• Calculation Output - Pay period income taxes on the Regular Earnings.

The following table shows how the system calculates the tax payable when the bonus is included with regular earnings:

Calculation Step	Calculation Input	Calculation Output
1. Determine annual taxes payable using annualized earnings including the bonus payment.	The following will derive annual taxable gross: (CIT taxable earnings gross year-to-date [YTD], including YTD bonus) + (current annualized tax method earnings Х no. of pays remaining in the year including the current period) + (current bonus payment)	Perform tax calculation and the result will be annual income taxes which for this exercise will be Base Amount A.
2. Determine annual taxes payable using annualized earnings excluding the current bonus payment.	The following will derive annual taxable gross: (CIT taxable earnings gross YTD, including YTD bonus) + (current annualized tax method earnings Х no. of pays remaining in the year including the current period)	Perform tax calculation and the result will be annual income taxes which for this exercise will be Base Amount B.
3. Determine pay period income taxes payable on the bonus payment.	The following will derive pay period income taxes on the bonus payment: (Base Amount A – Base Amount B)	Pay period income ax payable on bonus payment.
4. Determine pay period income taxes for the Regular Earnings and the Bonus payment.	The following will derive pay period income taxes for both Regular Earnings and the Bonus payment: Pay period income taxes on the Regular Earnings + Pay period income taxes on the Bonus payment	Total pay period income taxes for this combined payment (cheque).