Question
Are taxes on income (from employment or pensions) assumed to be paid same-year, or in arrears?
Answer
Taxes on employment income are assumed to be paid in the same year as earnings, provided the earner is an employee or company owner. If the income is entered as Employment income with the Source field set to Employed or Company Owner, taxes will be paid on the income in the year that it is earned (except any dividend tax).
Secure pension income is also taxed in the year that it is received e.g. state pension, final salary pensions.
Note - If after end of year assessment the individual is found to have paid too much or too little tax for the year, a balancing tax payment or refund (shown as a tax credit) will appear in the cash flow chart in the following year. Find out more about the software's income tax calculations here.
Taxes on self-employment earnings are paid in arrears, following end of year assessment. If the income is entered as Employment income with the Source field set to Self-Employed, taxes will be paid on the income in the following year of the plan.
Taxes on other income sources (e.g. rental income, royalties), entered as Other Income, are paid in the following year, following end of year assessment.
Taxes on the interest and dividends on savings and taxable investments are paid in the following year, following the end of year assessment.
The timing of tax on income from ARFs depends on how the income is taken. For imputed distrubutions and planned withdrawals, taxes are paid in the year the income is received. For as needed withdrawals, taxes are paid in arrears, following end of year assessment.