# How Lump Sum Tax Method calculation works

The lump sum tax method is used for severance pay, retiring allowances or custom payroll instructions tax calculation.

To determine the tax rate, lump sum payments paid to an employee in a year are taken into consideration. Unlike the bonus calculation, there is no annual income estimate to determine the tax bracket.

## 1. To determine the composite rate, combine all lump sum payments that you paid or expect to pay in the calendar year. There is no deduction on CPP contributions or EI premiums from retiring allowances.

The following lump sum withholding rates are used to deduct income tax:

 Federal (except Quebec) Federal (Quebec) Provincial (Quebec) Rates Lump-sum amount 5% - Up to \$5000.00 - 10% Up to \$5000.00 5,000.01 up to 15,000.00 - 15% - Over \$15,000.01 Up to \$5000.00 20% 5,000.01 up to 15,000.00 - Over \$5,000.01 30% Over \$15,000.01 - -

## 2. The formula for Lump Sum Tax Calculation is Lump Sum Annual Amount * Applicable Rate.

A new radio button Lump Sum tax calculation is available to allow for lump sum tax calculation in custom payroll instructions. For more information on the lump sum tax method for severance pay and retiring allowances, refer to our Retirement Allowance and Severance Pay payroll instructions article.

• # Related Articles

• ## Add Retirement Allowance and Severance Pay payroll instructions

Canada Revenue Agency (CRA) and Revenu Québec (RQ) regulations state that severance pay and retiring allowances must use the non-periodic lump sum method to calculate tax. A new payroll instruction, Severance Pay, is added to Rise payroll instruction ...
• ## FAQ: Payroll setup

Q: How does Rise calculate deductions for federal and provincial taxes? A: Rise uses cumulative averaging, meaning that our system uses the year-to-date options in the tax calculation as described in the Payroll Deductions Formulas for Computer ...
• ## Get your T4 remittance balance from the CRA

The remittance balance is the credit to your payroll account with the CRA -- this is the sum of all money remitted to them for the year. If you joined Rise during the year, this would include amounts remitted by you or by your previous provider. If ...
• ## Configure tax settings for an employee

What is the system default? Without any adjustments made, the system will assume all of your employees are claiming the Basic Personal Amount for their region for this year at a federal and provincial level. This is typically the correct setup, but ...
• ## Process tax form runs

Prior to processing year end tax forms, you must complete the following steps: 1. Close the previous year. For details on how to close the previous year, check out our article on How to close the year. 2. Find your T4 remittance balance from the CRA. ...