SimplePay has a built-in system item to accommodate for the special tax and reporting requirements of an income protection policy contribution. Income protection refers to an insurance policy which pays benefits to policyholders who are incapacitated and hence unable to work due to illness or accident.
Since 1 March 2015, payments towards income protection policies are not tax deductible. However, any income received from claims made against the policy are tax free.
To add the item on SimplePay for the policy premium:
- Go to Employees on the left-hand menu and select the relevant employee.
- Click on Add next to Regular Inputs.
- Select Income Protection under Deduction.
- You can then enter the:
- Amount paid by employee (not deducted): This refers to any contributions made in the employee’s private capacity outside of payroll, and is included for informational purposes.
- Amount deducted from employee: These are paid by the employee through payroll, and will reduce their nett pay.
- Amount paid by employer: Any amounts paid by an employer will result in taxable fringe benefit, which is reported under code 3801.
- Indicate whether the employer owns the policy or not. This is included for informational purposes.
- Click Save.