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Koroll & Company Blog

What Payroll Source Deductions are Employers Required to Remit?

[fa icon="calendar"] Jan 31, 2023 2:03:32 PM / by Koroll & Company

Blog 3If you have employees, you are required to deduct and remit source deductions from your employee’s wages, salaries and taxable benefits. 

Each pay period, you are required to withhold and remit three source deductions. Let’s take a closer look at those deductions, what they mean and how they are calculated: 

1- Canada Pension Plan

For employees 18 to 64 who don’t receive a Canada Pension Plan (CPP) retirement or disability pension, you must deduct CPP contributions from your pay. If your employee is 65 to 70, you will continue to deduct contributions unless they elect to stop paying contributions. 

Each year, the federal government provides the maximum pensionable earnings for CPP, a basic exemption amount and the rate of CPP that must be deducted from your employee’s pay. 

The Maximum Annual Pensionable Earnings for 2023 are $66,600. You are not required to deduct CPP from any amounts over and above this maximum. The basic exemption amount is $3,500. This means you aren’t required to deduct and remit CPP on the first $3,500 your employee makes. 

The 2023 contribution rate is 5.95%. This is the amount you must deduct from your employee’s gross pay. As an employer, you are also required to contribute 5.95% of your employee’s gross pay but it is not deducted from their pay. 

Example:

Your employee’s gross pay for the pay period is $1,000. So far this year, they have made $15,000. Because they have already made more than $3,500 you are required to deduct and remit CPP on the full $1,000. 

Employee Contribution = $1,000 x 5.95% = $59.50 

You’ll deduct this amount from your employee’s gross pay. 

Employer Contribution = $1,000 x 5.95% = $59.50

You won’t deduct this from your employee’s gross pay. Instead, this is an expense paid out of company earnings. 

2 - Employment Insurance 

You are also required to deduct Employment Insurance (EI) premiums from your employee’s gross pay. By paying these premiums, you gain access to temporary financial assistance while unemployed. You may also be able to receive benefits for sickness and pregnancy, as well as caring for a newborn, adopted child or seriously ill family member. 

Each year, the federal government provides the maximum insurable earnings for EI, and the rate of EI must be deducted from your employee’s pay. 

The Maximum Annual Insurable Earnings for 2023 are $61,500. You are not required to deduct EI from any amounts over and above this maximum. There’s no basic exemption for EI. 

The 2023 contribution rate is 1.63%. This is the amount you must deduct from your employee’s gross pay. As an employer, you are also required to pay 1.4 times the employee’s premium, but it is not deducted from their pay. 

Example:

We will continue with the same example from the section on CPP. Your employee’s gross insurable earnings for the pay period is $1,000 and they have made $15,000. 

Employee Contribution = $1,000 x 1.63% = $16.30

You’ll deduct this amount from your employee’s gross pay. 

Employer Contribution = $16.30 x 1.4 = $22.82 

You won’t deduct this from your employee’s gross pay. Instead, this is an expense paid out of company earnings. 

3 - Federal and Provincial/Territorial Tax 

Finally, you are required to deduct income tax at the source. You will calculate how much to deduct from their gross pay based on the total claim amount on their provincial and federal TD1 forms and the current tax brackets. 

There’s no maximum amount of income for which income tax is deducted. As long as your employee continues to make money, you will continue to deduct it. However, if your employee expects to make less than the total claim amount on their TD1 forms, they can ask you to not make income tax deductions. 

Unlike CPP and EI, as the employer, you are not required to match income tax deductions. 

Current Federal Income Tax Brackets for 2023: 

  • 15% on the first $53,359
  • 20.5% on the next $53,359 
  • 26% on the next $58,713
  • 29% on the next $70,245
  • 33% on any income over $235,675

Current Provincial Income Tax Brackets for 2022 in Ontario: 

  • 5.05% on first $49,231
  • 9.15% on the next $49,232
  • 11.16% on the next $51,537
  • 12.16% on the next $70,000
  • 13.16% on any income over $220,000

Example

We will continue with the same example from the previous sections. Your employee’s gross income for the pay period is $1,000 and they have made $15,000. 

NOTE: Whether you're required to deduct federal and provincial income tax from the $1,000 will depend on which personal tax credits your employee reports on their TD1 Forms. For this example, we will assume they’re only claiming their basic personal amount, which is the lowest amount that can be reported on their TD1. Federally, this is $15,000. Provincially, in Ontario, this is $11,865. Because they have already made more than this amount, they will have to pay full taxes on the $1,000. 

Provincial Income Tax = $1,000 x 5.05% = $50.50

Because the employee has made less than $46,226 so far this year, we are using 5.05%. You’ll deduct the $50.50 from your employee’s gross pay. 

Federal Income Tax = $1,000 x 15% = $150

Because the employee has made less than $50,197 so far this year, we are using 15%. You’ll deduct the $150 from your employee’s gross pay. 

You are not required to pay any additional amounts as the employer. 

NOTE: This is a simplified example for illustrative purposes. Amounts produced by a payroll calculator may differ. 

There are other deductions that may have to be taken off employee pay like garnishments, union dues and other pension plan contributions, but these will not be remitted along with Income Tax, CPP and EI. You will have different processes for ensuring these deductions get to the proper business or authority.  

Once you have determined the source deduction amounts, you must provide a wage statement to your employee on or before the pay date. Each employee’s wage statement should include the following information: 

  • Pay period 
  • Wage rate 
  • Gross wages (unless the employee was provided information on how the gross wages were calculated)
  • Purpose of each deduction 
  • Amount of each deduction 
  • Amounts that were paid associated with room and board 
  • Net wages 

If you are required to remit monthly, which is the most common, you must remit and pay deductions on the 15th of every month. On the 15th of each month, you are required to report and remit source deduction you collected during the previous month. This includes income tax, as well as employee and employer CPP and EI amounts. If you are paying source deductions by online banking and other payment methods, you may be required to make the payment sooner to ensure it arrives on time to the CRA. 

Other payment frequencies include: 

  • Quarterly 
  • Up to twice a month 
  • Up to four times a month 

If you do not have any employees during a specified month and have not deducted any source deductions, you are still required to send in a NIL remittance on the 15th of the month.  

If you fail to remit and pay source deductions, the CRA can take actions against you and may charge penalties. 

For more information on source deduction or for help calculating, remitting and paying source deductions, please contact us today.


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The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.



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Topics: CRA

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