What you need to know about Payroll Tax for 1 April 2017
The Payroll Tax Amendment Act 2017 commenced on 1 April 2017 and it changed the structure of payroll tax into two SEPARATE portions:
The EMPLOYER portion and the EMPLOYEE portion.
Effective 1 April 2017, payroll tax will consist of two separate portions which must be calculated separately and reported by employers on the quarterly tax returns. The sum of the two portions is the total payroll tax payable.
The employer will remain responsible for the payment of both portions however they will have the option of deducting the employee portion in full or in part.
The employer is responsible for calculating the full employee portion regardless of whether they deduct it from the employees or not.
Employer Portion
The employer will be required to pay tax on gross remuneration as defined in the Payroll Tax Act 1995 based on the following rate structure:
|
Class of Tax Payer |
**NEW** Tax Rate 2017/18 |
|
Annual payroll > $1,000,000 |
10.25% |
|
$500,001 ≤ Annual payroll $1,000,000 |
9.00% |
|
$200,000 ≤ Annual payroll $500,000 |
7.00% |
|
Annual payroll <$200,000 |
1.75% |
|
Exempt undertakings |
10.25% |
|
Government, Government Boards, Parish Council & Bermuda College |
0.00% |
|
Taxi, farm, fish & educational, sporting, scientific institution |
1.75% |
|
Charities, School, religious, and cultural organizations |
0.00% |
|
Economic Empowerment Zone (only nine tax periods from and including tax period in which the business is established) |
0.00% |
|
Bermuda Hospitals Board, Corporation of Hamilton and St. George |
3.50% |
|
Hotel & Restaurants with annual payroll ≥ $200,000 |
6.00% |
REMEMBER- this is NOT the full amount of payroll tax due.
This is only the EMPLOYER portion.
Employee Portion
Effective 1 April 2017, the EMPLOYEE portion of payroll tax is a separate amount and must be calculated separately from the employer portion. The sum of the EMPLOYER and EMPLOYEE portion is the TOTAL payroll tax payable.
Employers have the option to deduct the employee portion of payroll tax from their employees however the responsibility to pay the full amount of tax (employer and employee portion) to the Office of the Tax Commissioner still rests with the employer.
The transitional period rate for the EMPLOYEE portion only was a flat 6% for the period 1 April – 30 June 2017. So for the 1st quarter of 2017/18, the EMPLOYEE portion is calculated as 6% of each employees’ gross earnings as defined in the Payroll Tax Act 1995.
Effective 1 July 2017, the EMPLOYEE portion is calculated using a marginal tax rate structure as follows:
|
Annual Remuneration |
2017/18 Tax Rate |
|
Less than or equal to $48,000 |
4.75% |
|
$48,001 to $96,000 |
5.75% |
|
$96,001 to $235,000 |
7.75% |
|
$235,001 and above |
8.75% |
The marginal tax rate is the rate of tax that employees incur on each additional dollar of earnings. As earnings rise, each dollar of earnings above the previous level is taxed at a higher rate.
It is important to note that the marginal tax is applied to each employee’s annual rate of pay. For employees that earn fluctuating amounts per pay period, the annual rate of pay must be recalculated each pay period so that the payroll tax can be adjusted accordingly.
Note that the year must coincide with the financial year as defined in the Payroll Tax Act 1995 (1 April – 31 March)
Employees in special situations
The following persons in special situations are to be taxed only for the employee portion i.e. the employer portion is exempt under these special situations:
- New Bermudian Hires
- Construction employees under the Approved Construction Remuneration
- Employee on jury duty
- Employee on duty with the Bermuda Regiment
- Hotel employees in November, December , January, February, and March
- Retail employees in January, February, March
Other important changes:
- Taxable benefits which are included in the gross remuneration subject to tax for the employer portion will remain the same with the exception of training and development.
Training and development costs paid by the employer are no longer taxable. - Special Relief (section 20A) will be repealed i.e. $600 per employee who is on the payroll at the end of the tax period and who has worked a minimum of 180 hours during the tax period. This deduction will no longer apply.
- The tax cap currently at $750,000 per annum will be raised to $900,000 per annum.
- The existing non legislated payroll tax concessions to Hotels, Retailers and Restaurants will be fully withdrawn and discontinued as at 31 March 2017.