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Questions and Answers
What information can an employee verify on their payslip?
What is the purpose of a time card in a business?
What is the correct double entry for paying wages by cash?
What is recorded in an individual record card for each employee?
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When statutory payments are made, which double entries are involved?
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What is the new annual personal allowance for individuals in Trinidad and Tobago effective January 1, 2023?
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Which form must an employee complete and submit to their employer when they start their job?
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What can employees choose to do if they disagree with the amount of tax withheld by their employer?
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What is NOT a way to reduce personal tax liability according to the discussed deductions?
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When is the filing deadline for self-employed individuals' tax returns?
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Which of the following does NOT require submission of a TD1 form?
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Which document is provided by an employer that indicates effective employment date and salary?
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What is one possible item that can be deducted from declared income to lower tax liability?
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What defines chargeable income under the PAYE system?
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What is the tax rate for individuals with chargeable income exceeding TTD 1 million?
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Which individuals are required to file income tax returns?
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Who is responsible for deducting income tax from an employee’s salary?
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What must self-employed individuals do by the end of the financial year?
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What information must be included when applying for a Board of Inland Revenue (BIR) file number?
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What is the primary use of a Pay As You Earn (PAYE) number?
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What happens if an employee is not satisfied with the tax amount deducted from their salary?
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Which of the following expenses requires seeking approval from the Inland Revenue Division?
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What is the Total Annual Income calculated from a gross monthly salary of $8,000?
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Which document is NOT appropriate as supporting documentation for claiming tax deductions?
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How do you calculate 70% of the Total Annual NIS payment of $5,168.80?
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What is the purpose of submitting the TD1 form?
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Which of the following is included in the method for calculating Total Annual NIS payment?
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When must TD1 forms and supporting documents be submitted to a Taxpayer Services Section office?
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Which of these payments does NOT require supporting documentation for tax deductions?
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What is the Chargeable Income calculated for Janet James?
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How is the PAYE deduction calculated for Janet James?
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What is the Total Tax Deducted for Janet James?
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What percentage is used to calculate the Tax on Chargeable Income?
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What are the records that must be maintained according to payroll practices?
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How much is the monthly PAYE deduction for Janet James?
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What is the purpose of a payroll?
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What is the Total Annual Income for Janet James?
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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.
