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A payroll category may need to be taxed as a bonus if the payments being made are a 'one-time' or irregular payment. This most commonly refers to to bonus payments, but can also be true for lump-sum vacation payouts, retro payments, or other irregular commission payments (ones that the employee isn't normally entitled to or regular paid).
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Harmony uses what is called a prorated tax formula for calculating taxes. In a nutshell, Harmony taxes the amount of your regular wages (and any benefits that are subjected to income tax), multiplies it by the number of payrolls in the year to determine the tax b racketbracket, then calculates taxes on that that value before dividing those taxes by the number of pays in the year. A visual of the formula is below:
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If the bonus is entered into a pay period where there are no regular pays present, then Harmony doesn't have any regular wages to use in the calculation of the bonus. Therefore, the annual tax is being calculated ONLY on the bonus amount. Don't forget: 99% of the time, your bonus payments will likely be BELOW the employees' annual tax credits, so Harmony will see see this as the employee owing no taxes. Keep in mind that any benefits that are subjected to income tax are also used to calculate in any paycard.
Bonus payments must be made to a pay period where a) the regular wages have already been paid to the employee, OR b) regular wages are also being paid at the same time as the bonus payment.
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