In lieu of an expected pay rise, my employer is giving me a one-off lump sum realignment pay to cover the period 1 September 2023 to 1 March 2024 when the new EA is due to commence.
My employer has calculated the tax withheld for this pay period (base + lump sum) by reference to the fortnightly tables, resulting in a tax rate of 52% for the lump sum payment. The STSL contribution is double the amount that is usually withheld. This means tax is being withheld as though I am in a much higher tax bracket and at a higher STSL Repayment income and has resulted in excess PAYG withholding. NB: The lump sum is not overly large and will not affect my annual tax bracket or Repayment income rate.
I would have thought the lump sum should be taxed in accordance with Schedule 5 and 'annualised' over the relevant period above, resulting in less tax being withheld.
So should a one-off lump sum payment like this be taxed as though it is ordinary fortnightly earnings? Or should the amount withheld be calculated pursuant to Schedule 5? Where can I find further guidance about what kinds of payments are covered by Schedule 5?
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