TAJ Advises Against ‘Threshold Abuse’

Tax Administration Jamaica (TAJ) says it is committed to informing the public about threshold abuse. Threshold abuse is defined simply as misusing the income tax threshold. While it is not the most attractive subject matter, the issue has presented many challenges for uninformed taxpayers.

Manager of Taxpayer Education at the Mandeville Revenue Service Centre, Marie McDonald, explains the concept in an interview with JIS News.

“So to understand threshold abuse you must first establish what is meant by threshold. It is simply the annual income allowed to residents of Jamaica, which is taxed at a rate of zero per cent. That is, it’s tax-free. So you may hear persons referring to it as the tax-free amount, or the zero-income tax amount. The current annual threshold is $1,596,00.00. This took effect in 2018 when the threshold was increased.” Mrs. McDonald notes.

She explains how the abuse of the threshold occurs.

“Threshold abuse is the unlawful excessive use of the allowed annual amount of taxpayer entitlements under the Income Tax Act by individuals with two or more employment income sources,” Mrs. McDonald says.

She notes that the abuse is committed partly because of the employees. “Now these individuals would have failed to inform each of their employers of their other sources of income and what this does is allow them to benefit from the annual tax-free deduction at each of their employment,” Mrs. McDonald says.

The income tax threshold of the 1.5 million is allowed once per annum to each Jamaican. This means that each individual should only be benefiting from that tax-free amount or income tax threshold only once within a particular year. This presents a challenge for persons who are employed at two or more places.

“It is the responsibility of the employee to advise all of their employers that they have another source of employment income,” Mrs. McDonald says.

She gives a breakdown of how the threshold works for persons who have two sources of income. “If they have concurrent employment, if it is that you’re not earning up to the 1.5 million, it means that you are not benefiting from the full annual or monthly amount, because the amount is also broken down monthly. So of that 1.5 million, you will benefit from $125,008 tax-free each month,” she notes.

For example, if an individual is not earning $125,000 at employment A, it means that whatever they are earning, only $100,000 of that 125 thousand tax-free amount is what is being applied, which means there is another $25,008 that can be used by employment B. “If employment B doesn’t know that the individual is employed elsewhere and they are earning $70,000 at employment B, employment B, is going to apply $70,000 out of the supposed $125,000 as tax-free amount because they don’t know that you’re benefiting from $100,000 somewhere else. What that means is that that individual would have gotten $170,000 for that one month tax-free instead of $125,000,” she clarifies.

To avoid abusing the threshold, Mrs. McDonald outlines the steps that can be taken by the employee. “Simply ensure that they inform each employer about their other employment income. So if it is that you have left an employment within a particular year, and we put that at January to December calendar year, if for a particular year you would have changed employment within the year, your past employer or the employment you’re leaving, is supposed to present the employee with a document called a P45.” Mrs. McDonald explains.

The P45 document will show how much tax has already been deducted and how much tax-free amount the individual would have benefited from to date. The TAJ states that once the document is presented to your current employer then they will know how to continue with your benefits.

The responsibility to avoid threshold abuse does not only lie with the employee. Mrs. McDonald explains that employers can also play their part in being compliant with the tax laws of the country.

“Another way that the threshold abuse can be prevented is that if the employer in the initial interview asks the employee. If they want to ensure that they are conforming to the requirements in terms of reporting for their employees, make the necessary inquiries during the initial interview with the prospective employee. So you’ll want to determine whether they are currently employed to some other entity.” Mrs. McDonald tells JIS News.

She says the employer would then need to ask the potential employee for the documentation support to see if they are already benefiting from the income tax threshold. “So these are some of the things that the dialogue in the interview can inform, as well as the employee volunteering information so their employer can help to alleviate issues going down the road.” Mrs. McDonald highlights.

The Tax Education Manager says if persons are unclear as to whether they are abusing the income tax threshold, then they are encouraged to do self-checks. This she says can be done with the assistance from representatives from Tax Administration Jamaica.

“Well, if the taxpayers are aware of how their pay slip is made up and what the income tax threshold is and what rates are to be used (this information is also on our website by the way) some persons may do self-checks to ensure that their employer is not taking out more taxes than they should… . We encourage employed individuals to do this,” she adds.

Mrs. McDonald also says that guidance can be given if contact is made with the TAJ.

“If you’re not sure, you can seek to get the guidance from a TAJ representative in understanding your pay slip, understanding the calculation, and you will know if you’re benefiting from more than one income tax threshold. If it is that you have more than one employment income and none of your employers know that you’re employed elsewhere, and they’re all applying that income tax threshold to the income you’re earning under different employment, then that’s one of the simplest ways.” She notes.

The TAJ also alerts people to the abuse through its ‘Threshold Abuse Programme’ where the person who is in violation is identified through the analysis they have in their system.

“John Doe” is identified and they’re assessed, so they get a notice of assessment and they will be contacted about it, to say you will need to pay these additional monies based on what our records show.” Mrs. McDonald concludes.

The Threshold Abuse Programme was implemented in the 2016/2017 fiscal year and involves examining of the S02 (Employers Annual Return). The programme was developed to address payroll variances detected and has two main objectives; first, to assess any additional taxes that may be due arising from the taxpayer’s employment information presented, including statutory deductions; and second, to educate them on their entitlement to one income tax threshold per year of assessment as well as their obligation to report and declare income from more than one employer.

Taxpayers with multiple employment are reminded that they have an obligation to file a personal income tax return, reporting their total income earned from all sources, tax withheld at source, and any tax liability for the year of assessment.