Calculating and Remitting Employee Deductions in Canada
As an employer, you are responsible for paying your staff properly. Employees should have the correct amount of taxes withheld from their checks. Employers are required to comply with the rules established by the Canada Revenue Agency.
If you are a new employer, follow the steps below when setting up and running payroll in Canada.
Setup Business Number: If you are an employer, you are required to submit taxes withheld from an employee’s check to the Canada Revenue Agency (CRA). This will require you to have a Business Number. This can be done online, over the phone, fax or mail.
If you already have a Business Number and already participate in another CRA programs, you will add “Payroll Deductions” to your existing programs.
Obtain new hire information: When you hire a new employee, they must complete a federal and provincial TD1 form. This form will determine how much tax an employer should withhold from an employee’s check. In addition, you will also need to verify the employee’s Social Insurance Number (SIN) card. When checking the card, make sure that the name and SIN are the same as what the employee included on their TD1 form.
Calculate deductions: To determine the amount of deductions that should be withheld from an employee’s check, do the following;
Determine taxable wages – In addition to salaries and hourly wages, employees may have other taxable benefits that should be included in their compensation. These may include providing employees with low interest loans or granting the use of a company car. The CRA’s Guide T4130, Employers’ Guide – Taxable Benefits and Allowances gives details on how to calculate the value of these benefits and which taxable benefits are subject to GST/HST.
Employee’s pay is typically subject to three types of deductions; income taxes, Canadian Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums. An employee’s wages, along with their taxable benefits, are subject to deduction.
Deduct income tax: To determine how much income tax you need to withhold, you can use the CRA tool Payroll Deductions Online Calculator, which calculate the income tax withholding, as well as other payroll deductions. You can also use the provincial or territorial tax tables to determine income tax withholding.
Deduct CPP: If an employee is between the ages of 19 and 69 years old, CPP contributions are required. Certain exclusions apply for disability or if the employee is currently receiving pension payments through the CPP. CPP contribution calculations and other information about the program can be found on the Canada Pension Plan page from the CRA.
Deduct EI Premiums: EI premiums are deducted based upon the total wages paid. They are calculated based on a rate of 1.62% of annual insurable earnings, up to $53,100. The maximum EI premium contribution for an employee for 2019 is $860.22. In addition, employers are required to match the contribution at a rate of 1.4% of the premium withheld. Once an employee has reached the maximum threshold, EI deductions and the related employer contribution will cease. EI premiums can be calculated using the CRA’s Payroll Deductions Online Calculator or by using tables provided in the Guide T4302, Payroll Deductions Tables and Guide T4008, Payroll Deductions Supplementary Tables.
Other deductions: In addition to the CRA-mandated deductions, an employee may have other deductions withheld from their checks with are specific to your company. These can include deductions for life insurance premiums, retirement plans, or extended health benefits.
Remit your deductions and employer contributions: Deductions can either be remitted online, in person, or via the mail. Employers remit their deductions based on their average monthly withholding amounts (AMWA). New employers, however, are classified as regular remitters. Once an employer has established a remittance history, they will be notified by the CRA of their change in remittance frequency. Details for remittance frequency are included below;
- Regular Remitter – Must submit deductions by the 15th of the following month after paying employees
- Quarterly Remitter – If your average monthly withholding amount (AMWA) remittance is between $1,000 and $3,000, you may be eligible to submit deductions quarterly. This should be done by the 15th of the month following the end of the quarter. Quarters are defined as:
- January – March – remit by April 15
- April – June – remit by July 15
- July – September – remit by October 15
- October – December – remit by January 15
- Accelerated filer – Threshold 1: For an AMWA of $25,000 – $99,999.99, an employer is required to remit their deductions as follows:
- Deductions from days 1- 15 in the month should be remitted by the 25th of that month
- Deductions from days 16 – 31 in the month should be remitted by the 10th of the next month
- Accelerated filer – Threshold 2: Employers with an AMWA of $100,000 or more must remit their deductions within three days of the last date listed below:
- Day 1 through Day 7
- Day 8 through Day 14
- Day 15 through Day 21
- Day 22 through the last day of the month
The CRA’s Pay (remit) source deductions will provide more information about remittance requirements, as well as how to correct errors made.
Complete T4 slips and returns: As an employer, you are required to remit annual reporting to the CRA. These reports, called T4 slips, reflect the total amounts of income and source deductions for each employee for the year. T4 Slips have 3 copies, with one going to the employee, one sent to the CRA, and one held by the employer. Employers are required to provide employees with a copy of their T4 slips by the last day of February.
The T4 Summary and T4 Slips are required to be completed and sent to the CRA, no later than the last day of February. Forms that are filed beyond this deadline will be subject to penalty. If you have more than 50 T4 slips to file, you must do this electronically using the account that you’ve setup with the CRA. If you have less than 50 T4 slips, you may remit these to the CRA via mail. As long as it is postmarked by the last day in February, it will not be considered late.
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