Understanding Credit Allocations

Under Canadian rules, some common benefit plans have a premium cost tax status under which all employer-paid portions are nontaxable and all employee-paid portions are taxable. We refer to these types of benefit plans as variable taxation plans because the tax status depends on who pays the premium.

With PeopleSoft Benefits Administration, you can set up benefit plans that automatically provide the best tax advantage to employees by allocating flexible credits to those benefits that would be taxable unless paid for by credits. To set this up:

1. Define your employer-paid flexible credits for each plan type and link them to taxable earnings codes.

   Use the Benefit Program table to define these flexible credits.

2. Define the premium deductions for each of your variable taxation benefit plans as before-tax deductions to use when sufficient flexible credits are available to pay for the benefit premium.

   Use the Deduction table to define these premium deductions.

3. Create a set of taxable benefit deductions (the tax alteration deductions) that complement the variable taxation benefit plan deductions to use only when sufficient credits are not available to pay for the benefit premium.

   Every variable taxation benefit plan deduction (not taxed) should have a corresponding tax alteration general deduction (taxed).

   Use the Deduction table to create a set of taxable benefit deductions.

4. Set up the tax alteration deductions as general deductions.

   Use the General Deductions table to set up the tax alteration deduction codes as general deductions.

5. Add your tax alteration general deductions to the list of valid general deductions for each applicable company.

   Use the Company General Deductions table to add these deductions.

6. Link your variable taxation benefit plan deduction codes to your tax alteration general deduction codes through the Credit Allocation table to prepare them for Benefits Administration and Payroll for North America processing.