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:
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.
Click here to learn more about Lump Sum Payments and Withholding rates for Lump Sum Payments.
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