How is my off-cycle payment taxed?
This article is for EOR employees and explains how an off-cycle payment that you received (called an "On Demand Payroll") will be taxed.
Off-cycle, on-demand payroll payments will be taxed depending on adjustment type (e.g. an expense is often not taxed, but salary advances are likely to be taxed) and not according to the timeline of whether a payment is on cycle or off-cycle.
But off-cycle payments you receive are taxed using an estimation only, which is generated based on the prevailing tax rate for your country.
However, the exact amount will be reviewed and then adjusted if needed on your following regular on-cycle pay based on your total earnings (and the applicable tax rate for you).
In summary:
- Off cycle payments are taxed using an estimation method based on your prevailing tax rate. We use this to withhold taxes from the payment to ensure compliance with local laws in your country
- Because taxes are based on total actual earnings in a given pay period, we cannot calculate final tax liability until the close of the regular payroll cycle
- When the cycle closes we will calculate the total tax obligation and make any necessary adjustments to the pay to reflect the actual tax owed.