RRSP tax deductions on Bonus

[mike_kuret]

It appears that SAP is not calculating federal/provincial withholding tax correctly on bonuses when the associate is also having deductions to their RRSP plan. When there is no RRSP deduction, SAP’s tax calculation seems to work fine. The calculation is taking the entire RRSP contribution and annualizing it by multiplying it by the 21 remaining pay-periods in the year. This has the effect of lowering the expected taxable wages for the year, and is faulty logic as the bulk of the RRSP contribution relates to the bonus and future contributions will be much less. The RRSP contributions that relate just to regular pay should be annualized. But the portion that relates to the bonus should not. We need the portion of the RRSP contribution that relates to the bonus to be a “deduction”, but not a “Deduction at Source”. The term “Deduction at Source” essentially implies that it is a deduction from regular earnings and therefore gets annualized by multiplying the amount by the remaining pay-periods in the year. So we somehow need SAP to treat this as a deduction from the bonus and not a deduction at source. For Canada RRSP, how do other customers handle and what is the best way to go about fixing this?

[jonasben]

Hello Mike,

The "Annualized source deductions" represents factor F multiplied by the number of periods remaining.

For this, system uses Wage Type /106.

Your RRSP contribution on bonus is likely to have cumulation class 6, which inflates WT /106.

Check the setting in SM30 ->view V_512W_D.

From what I understand of your case, instead of inflating /106, you need this RRSP contribution accumulating in /108 instead.

During KATAX ICTX processing, /108 is not annualized. Instead, it is displays in log as 'Current applicable exemption' during calculation of factor A.

I found that standard has the model WT, which may be helpful: M580 RRSP Dedn from Bonus Pay

Regards,Jonas

[former_member98847]

Hi Jonas,

Could you please help to clarify, how Employees having RRSP contribution- which are having incorrect tax being generated can have this issue being resolved. Even we are currently facing issue wherein EE has an RRSP contribution the system is calculating to little tax. If there is no RRSP then the tax is perfect.

Thanks for your assistance!

Megan.

[jonasben]

Hello Megan,

What I wrote above is a generic answer to the question raised in this post.

The question you wrote is a bit vague.

• Why do you think tax calculation is wrong?
• Is factor F ( WT /106) wrong?
  - If factor F is wrong, is the amount larger than you expect?
  If so, check the cumulation of your RRSP WTs.

Remember: RRSP with cumulation class 6 will accumulate into /106.
In general terms, the amount in /106 (factor F) will be annualized and deducted from factor I (annualized salary), forming factor A.

If you are comparing two employees (one with and one without RRSP), make sure that scenarios are equivalent (same salary, same credits in IT 462 and 463, etc.).

If still you believe the tax is wrongly generated, please report an incident to PY-CA and we will analyze it in your system.

Kind regards,

Jonas

[Kishore84]

Hi Mike/Megan

Even we are facing the similar issue when employee has cross year retro. SAP is proposing to prorate /106 into /106 and /108. Did you fix the issue. If yes, could you please share resolution on how to handle this scenario.

Regards

Kishore