PT – Nov 2019 – L2 – Q3a – Income Tax Liabilities

Computes King Peter’s tax liability on overtime for the months of January and February 2019.

Question

a) King Peter is a Junior Staff member of Sir James Company Limited. His monthly basic salary is GH¢700.00. He was paid overtime totaling GH¢50.00 during the month of January 2019.

Required:
i) Compute his tax liability on overtime for the month of January 2019. (2 marks)

In the month of February 2019, King Peter was paid overtime totaling GH¢500.00.

ii) Compute his tax liability on the overtime payments for the month of February 2019. (3 marks)

Answer

i) January 2019:
Description Amount (GH¢)
Percentage of overtime to basic salary: GH¢50/GH¢700 x 100% = 7.14%
This does not exceed 50% of basic salary.
Tax payable (5% of the overtime amount) 5% x GH¢50.00 = GH¢2.50
(2 marks)

ii) February 2019:

Description Amount (GH¢)
Percentage of overtime to basic salary: GH¢500/GH¢700 x 100% = 71.43%
This exceeds 50% of basic salary.
Tax payable will be calculated as follows:

(3 marks to be allocated)