Record Pre-Paid Taxes

This section describes how to record employees’ pre-paid year to date (YTD) amounts for taxes, as well as earnings or deductions. Typically, this is used when employees transfer between legal entities, such as during a merger, and they are allowed to maintain the amount of CPP/QPP and EI/QPIP contributions previously paid within the year.

Note: In the case of CPP/QPP and EI contributions, whether or not the employee can maintain their previous contribution amounts is determined by the government.

Because CPP/QPP and EI contributions have a per year maximum, recording pre-paid YTD amounts for CPP/QPP and EI contributions allows employers and their employees to use those pre-paid amounts towards a single YTD amount, instead of starting over.

For example, an employee has worked for the first six months of the year in one legal entity, contributing to CPP and EI before a merger occurs and the employee is transferred to new organization. Without recording pre-paid CPP and EI contributions, both the employee and employer would have to start over contributing to CPP and EI. What the employee and previous employer contributed wouldn’t count towards the yearly limit. If these amounts are recorded as pre-paid amounts in the application, then they count towards the yearly limit. For tax calculation purposes, the pre-paid amounts are included in the YTD amounts for EI and CPP.

Although this functionality is commonly used to record pre-paid CPP/QPP and EI contribution amounts, it can be leveraged to record any YTD amounts (for taxes, deductions, or earnings) an employee has previously paid or earned at a previous legal entity within the year if these amounts can carry over to the legal entity the employee is transferring to.

To record pre-paid tax amounts for an employee:

1. Go to People, open the employee profile, and click Payroll > Pre-Paid Items.
2. Click Add.
3. In the Legal Entity drop-down list, select the legal entity that the pre-paid amounts apply to.
4. In the Year drop-down list, select the year the employee transferred.
5. To record pre-paid taxes, click the Taxes sub-tab and complete the following fields:
   • Tax: Select the tax you want to record a pre-paid amount for.
   • Amount: Enter the amount paid into the tax previously, while the employee was in their prior legal entity.
   • Wage Basis: Enter the sum of applicable taxable wages, which is the sum of earnings that are eligible to be taxed by the tax, up to any stated limit for the tax.
   • Total Taxable Wages: Enter the total sum, ignoring any stated limit of the tax, of applicable taxes.
6. To record pre-paid deductions, click the Deductions sub-tab and complete the following fields:
   • Deduction: Select the deduction you want to record a pre-paid amount for.
   • Amount: Enter the amount paid into the deduction previously, while the employee was in their prior legal entity.
7. To record prior amounts for earnings, click the Earnings sub-tab and complete the following fields:
   • Earning: Select the earning you want to record a prior amount for.
   • Amount: Enter the prior dollar amount of the earning.
   • Units: Enter the amount of units, typically hours, associated with this prior amount.
8. Click Save.