A number of our clients have contacted us this year to discuss issues with Manitoba’s Health and Post Secondary Education (HE) Tax Levy. The “HE Levy” is a tax imposed on remuneration that is paid to employees. The HE Levy is paid by employers with a permanent establishment in Manitoba. Effective January 1, 2008, employers with total remuneration in a year of $1.25 million or less are exempted (see note below). Associated groups (associated corporations/certain corporate partnerships) must share the $1.25 million exemption based on the total of their combined yearly payroll.
The notch provisions, with or without multiple entities, are causing the most concern among our clients. Here are the official numbers:
|Total Yearly Payroll||Tax Rate|
|$1.25 Million or Less||Exempt|
|Between $1.25 Million and $2.5 Million||4.3% on the amount in excess of $1.25 Million (notch provision)|
|Over $2.5 Million||2.15% of the total payroll (The $1.25 Million is not a deduction)|
Reporting, and any applicable remittance, is made monthly. However, if the notch provisions apply to your organization, you don’t have to start remitting until the threshold is reached.
PayDirt Payroll can easily handle the first and third levels. The notch provision is a challenge for all payrolls. It’s these employers, with between $1.25 and $2.5 Million in annual payroll remuneration, that are having the most concerns regarding how to implement a strategy to accrue the liability, for both single and multiple entities.
- For both single and multiple entities, the calculation and subsequent payment don’t start until you reach the $1.25 Million threshold.
- Multiple entities have to allocate the threshold (notch). Threshold allocation is simply proportionate to each entity’s payroll in relation to the total.
The challenge, in my mind, is that you have no expenses until you reach the threshold each year, and then you have a very big expense when you do reach it. For me, I would prefer to recognize the expense each pay period, from the beginning to the end of each year. A simple solution is to just “fool” your payroll software into calculating the reasonable estimate each pay period, a simple task for PayDirt Payroll. PayDirt would then create an accrual entry for the General Ledger.
Here are two examples:
- For A Single Entity – If 2015 payroll is estimated to be 2 Million, this entity falls in the middle bracket. (2,000,000 – 1,250,000) x 4.3% = $32,250, which is 1.6125% of gross payroll. In the EHT setup, enter $0 for the exemption amount.
- For Multiple Entities – Use the same approach for each entity’s payroll, but substitute the 1.25 Million with that entity’s proportionate share.
For the monthly remittance you would just fill in the form and do the corresponding math. Any payment would be booked against your accrued liability. If your estimate is perfect, then your December remittance should equal the balance of your accrued liability (or at least be very close). The challenge will come if your estimated annual payroll is not very accurate. You will need to monitor actual payroll through the year to make sure your original payroll estimate for the year is still valid, based on your monthly remittances. If the annual estimate has changed significantly, then you may need to rework the estimated percentage for the remainder of the year.
If we can assist you with implementing a strategy to accrue this tax, please feel free to give us a call at 1-888-534-5344. We are happy to help.