Payroll & Taxation Unit 3

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Questions and Answers

What information can an employee verify on their payslip?

Company profit margins

Their performance evaluation

Their gross wage or salary (correct)

Employee benefits eligibility

What is the purpose of a time card in a business?

To detail employee benefits and compensation

To record an employee’s skills and qualifications

To track employee attendance and punctuality (correct)

To calculate annual profit for the firm

What is the correct double entry for paying wages by cash?

Debit Wages, Credit Cash (correct)

Debit Cash, Credit Wages

Debit Salaries, Credit Expenses

Debit Wages, Credit Inventory

What is recorded in an individual record card for each employee?

Gross wage or salary and deductions Signup and view all the answers

When statutory payments are made, which double entries are involved?

Debit National Insurance Payable, Debit Cash Signup and view all the answers

What is the new annual personal allowance for individuals in Trinidad and Tobago effective January 1, 2023?

$90,000 TTD Signup and view all the answers

Which form must an employee complete and submit to their employer when they start their job?

Tax Declaration 1 Form Signup and view all the answers

What can employees choose to do if they disagree with the amount of tax withheld by their employer?

File a tax return Signup and view all the answers

What is NOT a way to reduce personal tax liability according to the discussed deductions?

Charitable donations to any organization Signup and view all the answers

When is the filing deadline for self-employed individuals' tax returns?

March or April Signup and view all the answers

Which of the following does NOT require submission of a TD1 form?

Self-employed individuals Signup and view all the answers

Which document is provided by an employer that indicates effective employment date and salary?

TD4 Certificate Signup and view all the answers

What is one possible item that can be deducted from declared income to lower tax liability?

Venture Capital Tax credits Signup and view all the answers

What defines chargeable income under the PAYE system?

Gross Salary minus Allowances Signup and view all the answers

What is the tax rate for individuals with chargeable income exceeding TTD 1 million?

30% Signup and view all the answers

Which individuals are required to file income tax returns?

Professionals and self-employed individuals Signup and view all the answers

Who is responsible for deducting income tax from an employee’s salary?

The employer Signup and view all the answers

What must self-employed individuals do by the end of the financial year?

File a tax return Signup and view all the answers

What information must be included when applying for a Board of Inland Revenue (BIR) file number?

Original & copy of Certificate of Registration Signup and view all the answers

What is the primary use of a Pay As You Earn (PAYE) number?

To remit taxes withheld from employees' earnings Signup and view all the answers

What happens if an employee is not satisfied with the tax amount deducted from their salary?

They may file a tax return if they choose Signup and view all the answers

Which of the following expenses requires seeking approval from the Inland Revenue Division?

Private annuities Signup and view all the answers

What is the Total Annual Income calculated from a gross monthly salary of $8,000?

$96,000 Signup and view all the answers

Which document is NOT appropriate as supporting documentation for claiming tax deductions?

A tax refund from the previous year Signup and view all the answers

How do you calculate 70% of the Total Annual NIS payment of $5,168.80?

$3,618.16 Signup and view all the answers

What is the purpose of submitting the TD1 form?

To seek approval for tax deductions Signup and view all the answers

Which of the following is included in the method for calculating Total Annual NIS payment?

Weekly NIS payment multiplied by 52 weeks Signup and view all the answers

When must TD1 forms and supporting documents be submitted to a Taxpayer Services Section office?

Between 8:00 am and 4:00 pm Signup and view all the answers

Which of these payments does NOT require supporting documentation for tax deductions?

Tax penalties Signup and view all the answers

What is the Chargeable Income calculated for Janet James?

$20,381.84 Signup and view all the answers

How is the PAYE deduction calculated for Janet James?

Tax on Chargeable Income divided by 12 months Signup and view all the answers

What is the Total Tax Deducted for Janet James?

$93,618.16 Signup and view all the answers

What percentage is used to calculate the Tax on Chargeable Income?

25% Signup and view all the answers

What are the records that must be maintained according to payroll practices?

Payroll, Payslip, Individual Record Card Signup and view all the answers

How much is the monthly PAYE deduction for Janet James?

$424.62 Signup and view all the answers

What is the purpose of a payroll?

To list employees and the payments due for a pay period Signup and view all the answers

What is the Total Annual Income for Janet James?

$114,000.00 Signup and view all the answers

Study Notes

Income Tax Overview

The Pay As You Earn (PAYE) system is implemented in many countries to facilitate income tax payments.
Employees aged over seventeen are mandated to pay income tax, calculated as a percentage of their chargeable income.
Chargeable Income = Gross Salary/Wage - Allowances.

Who Pays Income Tax?

All individuals, including self-employed and employed persons, must have a Board of Inland Revenue (BIR) file number for tax payments.
Employers deduct taxes from employees' salaries and pay them to the government.
Professionals and self-employed individuals are required to file tax returns annually.
Filing deadlines are typically set in March or April by the Inland Revenue Division.

Personal Income Tax Rates

25% tax rate for chargeable income less than TTD 1 million.
30% tax rate for chargeable income exceeding TTD 1 million.

BIR File Number and PAYE Number

All entities must register for a BIR file number for tax payments and returns.
PAYE numbers are required for companies and self-traders hiring employees.
These numbers must be maintained throughout the entity's operation.

Required Documents

Self-Employed/Sole Traders: Certificate of Registration, national ID, outstanding returns (if any).
Individual Employees: National ID, employment verification letter or previous TD4 Certificate.

Tax Amendments (Finance Act, 2022)

Annual personal allowance increased from TTD 84,000 to TTD 90,000, effective January 1, 2023.

Reducing Tax Liability

Employees can use the TD1 form to adjust the amount of tax withheld by their employer.
Tax returns may be filed if there are discrepancies between withheld taxes and actual tax liability.
Self-employed individuals pay taxes quarterly and file returns at year-end.

Tax Deduction Eligibility

Deductible payments include tertiary education costs, first-time home ownership, approved deferred annuity contributions, alimony, and venture capital tax credits.
Approval for certain deductions must be obtained through the Inland Revenue Division by submitting the TD1 form.

Supporting Documents for Deductions

Payslips, evidence of property ownership, annuities, court orders for alimony, and proof of educational expenses must support tax deduction claims.

Calculating Income Tax: Example

Total Annual Income = Gross Monthly Salary x 12.
Total Annual NIS payment = Weekly NIS Payment x 52.
Chargeable Income is calculated after deducting the exempt amount (TTD 90,000).
Tax on Chargeable Income is calculated at 25%.

Payroll Records

Primary payroll records include payroll, payslips, and individual record cards.
Payroll documents list employee payments due for a pay period, including gross salaries, deductions, and net pay.

Payslips

Employees receive payslips summarizing payroll details, confirming the accuracy of gross wages, deductions, and net pay.

Individual Record Cards

Each employee has a personal record card reflecting their annual gross and net salary and deduction history.

Time Cards

Some businesses use time cards, requiring employees to record their arrival and departure times, facilitating accurate wage calculations for hourly-paid staff.

Accounting Entries for Payroll

General payroll accounting entries include debiting wages/salaries and crediting cash/bank.
For statutory deductions, entries involve debiting wages and crediting both bank/cash and statutory payment liabilities.

Accounting Entries for Statutory Payments

Payments made for NIS and health insurance are recorded by debiting the respective payable accounts and cash/bank as needed.

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Description

Explore the fundamentals of the income tax system, including the Pay As You Earn (PAYE) approach and who is required to pay taxes. This quiz covers personal income tax rates, filing requirements, and the role of the Board of Inland Revenue (BIR). Test your knowledge of taxation principles and regulations in your country.