When you say “a final tax” do you mean that this amount cannot be included as tax pre-paid for your yearly income tax assessment? If this is the case then does this mean that the interest then does not need to be included as income in your tax return?
You should have created the money market fund (MMF) as a bank account.
The transfer of money into the MMF should have been handled by an inter account transfer from you regular bank account. This is effectively what you tried to do with your payment, but is more easily accomplished with an inter account transfer. The flaw in what you did was that a payment implies that the money left the accounting entity. But it did not. It was only transferred from one asset account (your bank) to another (the MMF).
Interest received should be recorded with a receipt with two line items. Line 1 would be the amount of interest earned since the last recorded interest. This line would post to an Interest received income account. Line 2 would be the tax and would be entered as a negative number. This line would post to either (a) a contra income account or (b) an expense account named something like Tax on interest received. The result will be an addition to net income equal to the interest minus the tax.
Financial accounting and tax accounting are not the same thing. So the fact that your records show the interest income is irrelevant for tax reporting. If the interest is truly not reportable as income because it has already been taxed, you would simply leave it off your tax filing. And you leave off payment of the tax withheld, as well.
You should verify your statement that the tax authority does not consider the tax withheld by the MMF as advance payment of your tax liability, which is more usual. If that were the case, you would report the interest income, but also report the advance payment made on your behalf by the MMF.
Certainly I had began on the wrong foot, which I have since corrected using the process you’ve outlined and realized satisfactory results.
I should also say that in the hours gone by I have been able to verify from my MMF facility handlers that the interest earned will still need to be declared, and I can use the WHT certificates when doing this to capture what was withheld beforehand.
Once again, thank you for helping me to resolve this issue.
Given this new information, let me modify my point #3 above. Line 2 of the receipt (reporting the tax withheld) should be posted to an asset account set up for the purpose, not a contra income or expense account. This asset account will record money effectively being held on your behalf by the tax authority and available for discharging your tax obligation.
When your tax is paid, use a payment form with two lines. Line 1 will be the full amount of tax on your income. Where this is posted will depend on how you have structured your equity in your chart of accounts. Line 2 will be posted to the tax withheld asset account and will be entered as a negative amount. This should be the full balance of that asset account accumulated during the reporting period, leaving only any amount withheld since the end of the period, which will be applied at the next tax filing. Just as the negative Line 2 on the original receipt reduced the amount coming to you by the tax withheld, the negative Line 2 on the payment will reduce the amount being sent to the tax authority with your tax filing.