With the start of the new year, it is important to have a handle on your source deductions for the year.
It is the responsibility of the employer to ensure that accurate source deductions are withheld from employee wages and then remitted to the Canada Revenue Agency (CRA) in a timely manner. This will ensure that employee wages are not over or under-withheld for tax purposes, and that all applicable deductions have been taken into account.
To begin, employers should first understand what is considered a source deduction.
Source deductions include Canada Pension Plan contributions, Employment Insurance premiums and income tax.
The amount of income tax that you deduct for each of these depends on your employees’ unique situation. To help ensure you are deducting the right amount, each employee should fill out a federal and provincial TD1 form each year.
These forms list the most common credits claimed by taxpayers. This includes:
- Basic personal amount
- Caregiver amount
- Spousal credit amount
- Age amount
- Pension income amount
- Disability amount
- And more
Employees can also let you know whether they have more than one employer paying them at once and request that additional tax be deducted, among other things. Using the amounts included on these forms, you, as the employer, can then determine the amount of income tax that should be deducted from each pay cheque.
If there are amounts that a taxpayer claims that are not on the TD1 form, they can have source deductions adjusted by filling out a T1213 Form - Request To Reduce Tax Deductions At Source.
The reason this form should be filled out each year is that life circumstances change, which can affect the credits that taxpayers can claim. Having the form filled out annually, or at least reviewed, can ensure you are optimizing your employees tax position.
Providing your employees with the forms as soon as you can will help ensure you have the correct information come the first pay period in the new year.
For more information on source deductions, TD1s or T1213s, please contact us today.