Tax Guide
This in-depth guide is intended to highlight key information regarding how Payment Labs handles tax.
Preface
If you have any tax jurisdictions enabled, then Payment Labs can collect the required tax information while onboarding a payee and perform the required tax related tasks on your behalf. Example these tasks include things like determining if any amount of money needs to be withheld, remitting withheld amounts to the corresponding tax governing body/administration, and/or issuing tax documentation to payees. To learn more about this please Contact Us.
Payment Information
While creating batches and payments you will typically specify a paymentCategory and a taxJurisdiction value. Those two values affect how we process tax related rules for that specific batch and/or payment. Please review the sections below for additional details.
Tax Jurisdiction
The taxJurisdiction field determines which tax jurisdiction is in effect for the processing of the respective batch and/or payment.
If you have no tax jurisdiction enabled, then the value for taxJurisdiction is not required and will default to none, which means no tax jurisdictions will be processed for the payment (no amount will be withheld, no remittances made, and no tax documentation is generated).
If you have only one tax jurisdiction enabled, then the value for taxJurisdiction is not required and will default to your enabled tax jurisdiction. You can still manually specify taxJurisdiction value of none for batches or payments where you want no tax jurisdiction being processed.
If you have multiple tax jurisdictions enabled, then the value for taxJurisdiction is required for batch creation and the payments on that batch will default the taxJurisdiction value to that of the batch they are assigned to.
Payment Category
The paymentCategory field determines the type of payment that is being sent out. Some tax jurisdictions take into consideration the payment category to determine if any tax rules are applicable and if so how much should be withheld, and which type of documentation to generate for the payment.
The recommendation is to always classify payments as accurately as possible to ensure the proper taxation rules and tasks are applied.
Since most tax processing is done after the payment is submitted, it's generally not possible to change a payment category after a payment is submitted without incurring possible tax penalties (especially in regards to amounts withheld and remitted).
Updated 26 days ago