How to deduct, remit, and report payroll source deductions
Hello. Thank you for joining us for this webinar about how to deduct, remit and report payroll source deductions.
Today's webinar is the first in a three-part series with step- by-step instructions. My name is Maurice, and I am your presenter today. Also, I would like to mention that today's webinar will be recorded and posted on the Canada Revenue Agency (CRA) website at a later date.
During today's webinar, we will discuss how to report payroll deductions to the CRA, review what employers need to do with their payroll, what their responsibilities are, and what payroll source deduction tools are available to them. We will show you step-by-step how to use Payroll Deductions Online Calculator (PDOC), talk about remitter types, remittance due dates and methods.
We will also discuss how to correct remitting errors, fill out T4 and T4A slips and summaries, and amend, cancel and replace a T4 or T4A slip. We will then see the resources available to you.
If you have employees or pay yourself a salary, you have to deduct and remit payroll source deductions.
As an employer, you are responsible for deducting Canada Pension Plan (CPP) contributions, employment insurance (EI) premiums, and income tax from your employees' remuneration and for remitting these deductions, along with your share of the CPP contributions and EI premiums to the CRA.
You are also responsible for reporting the earnings, CPP contributions, EI premiums, and income tax you withheld from your employees' remuneration on an information slip, which we will discuss later during the presentation.
So what do you have to do when you hire an employee? First, every employee must give you his or her social insurance number (SIN) to work in Canada. As an employer, you have to ask your employees for their SIN within three days of the day they start to work for you. You must keep this number in the employee's file. If an employee does not provide you with their SIN, you have to make a reasonable effort to get it.
A reasonable effort would be to ask the employee verbally or in writing for their SIN and to follow up with them. You might want to note the dates you asked for their SIN verbally and keep copies of any written requests. If you do not make a reasonable effort to get a SIN, you may have to pay a penalty of $100 for each SIN you didn't try to get.
The employee also has to give you two completed Form TD1, Personal Tax Credits Return, one federal and one provincial or territorial. These forms outline the tax credits an employee is entitled to claim when filing their personal income tax and benefit return. It will help you determine how much income tax to deduct from the employee's remuneration. These forms also indicate how the employee should complete the form if the employee has more than one employer.
The TD1 is available online on the CRA website. Employees can fill it out, save it, and print copies to keep and give to their employer. If employees claim personal tax credits with more than one employer, they may have to pay additional income tax when they file their income tax and benefit returns.
After deducting CPP, EI, and income tax, you need to remit them to the CRA as well as the employer's shares. To do so, you must open and maintain a payroll program account. If you need a payroll program account and you already have a business number (a BN), you only need to add a payroll program account to your existing BN.
If you don't have a BN, you must ask for one and register for a payroll program account before the date your first remittance is due. For information on the BN or to request one online, visit the Registering your business webpage on the CRA website.
A BN allows the CRA to identify a specific business (or other organization such as a charity) for business tax matters in Canada. Having a BN lets businesses and other organizations simplify their dealings with each other and with all levels of the public sector. The BN is based on the idea that each organization has a unique nine-digit number.
If you cannot use the online registration, you can register by mail or by fax. Print Form RC1, Request for a Business Number, and mail it or fax it to your tax services office or tax centre.
You can find the list by province of all tax services offices and tax centres on the CRA website.
You can also use the T4032, Payroll Deductions Tables, to calculate payroll deductions for the most common pay periods. We will review how to use the T4032 in an upcoming webinar, scheduled for December 7, 2016.
The CRA has a useful, easy-to-use online tool called the Payroll Deductions Online Calculator (the PDOC), to help you calculate the source deductions from an employee's pay and the employer's share of the CPP contributions and EI premiums. Let's talk about that in more detail.
When starting with PDOC, you enter the type of calculation you would like to perform, which is salary, commission, or pension payments. You can also use PDOC to verify the CPP contributions and EI premiums you should be deducting from your employees' pay. The next screen is the first step of the calculation.
You enter the province or territory of employment, the pay period frequency, and the date you pay the employee. For this example, we selected Ontario as the province of employment, the employee is paid every two weeks, and the paycheck is dated September 7, 2016. You can enter the employee's name and your business name if you plan on saving the file, but it is not necessary for the calculations. You must enter information in the fields marked with an asterisk.
Step two of the calculation is where you enter the gross amount of salary or wages the employee earned for that pay period. We entered $3,000 of gross salary. Enter vacation pay if you are paying any. There are several selections you can make at this point, depending on what you provide to your employee or whether the employee is contributing to RRSPs, paying union dues, etc. Once you selected the items that apply, click next for the last step. For this example, we did not select anything. We simply entered the gross income of $3,000.
In step three, the claim code from the employee's TD1 Form is automatically selected at the minimum, claim code 1. If the employee has a different claim code, please select it from the drop-down menu.
The employee might have decided to have more tax withheld from their pay. You would enter that amount in the next field. Enter also the claim code from a provincial or territorial TD1 Form.
In the CPP section, enter the pensionable earnings year-to-date. You will find the maximum pensionable earning for the year on the CRA website. This amount changes every year. For 2016, the maximum is $54,900. If the employee has already reached the CPP maximum annual contribution of $2,544.30, click this field. If however, the employee did not reach the CPP maximum annual contribution, enter the amount of pensionable earnings accumulated up to that date. For this example, remember that the pay cheque is dated Sept. 7, and the employee has not yet reached the maximum annual contribution. Their contributions now stand at $2,389.54.
The same applies for EI premiums. The employee's maximum insurable earnings for 2016 is $50,800, which means that an employee should have a maximum of $955.04 of EI premiums withheld from their paycheck during the year. Since that amount has been reached in our example, we click the button that says "EI maximum annual premium of $955.04 has been reached." The employer's EI premium rate defaults to 1.4 times the employee's premiums. If you were advised by the CRA to use a reduced rate, enter it in this field. Now click "Calculate."
Clicking "Calculate" gives you the final results. As you can see, the employee should receive a net pay of $2,218.39 for this pay period. The federal and provincial taxes are also calculated at $426.11 for federal income taxes and $213.66 for provincial income taxes. You will notice that the employee has $141.84 of CPP contributions but no EI premiums withheld. That is because he or she already reached the maximum EI premiums for the year.
At this point you can print and save the results. You can also click on "Employer Remittance Summary" to view what the employer's portion of CPP and EI is yet to be remitted. Let's have a look.
So, this is the calculation of the employer's remittances for the CPP contributions and EI premiums. To this amount, you add the income tax deducted from the employee's paycheck, the CPP and EI. For the purpose of our example, the total you have to remit to the CRA is $923.45.
As a new remitter, you should already have a BN from the CRA and a payroll program account. Even if you do not yet have a payroll account, you still have to send your remittances by the due date. Send your first remittance to your tax centre. Make your payment to the Receiver General and include a letter with the following information, as applicable:
- whether you are a new remitter or this is your first remittance
- the period that the remittance covers
- whether you need to open a payroll account if you haven't requested one yet
- and your complete business name, address, and telephone number
After your payroll account is registered, the CRA will send you a remittance form by mail. Send your remittances as we described earlier until you receive the remittance form.
New employers are considered regular remitters, so you should send your remittances monthly unless the CRA advises you to use a different remittance frequency.
An eligible new small employer who will pay remuneration for the first time in 2016 or later may have the option of remitting payroll deductions quarterly, which is once every three months instead of monthly.
To be eligible, a new small employer has to meet the following two conditions:
- the monthly withholding amount is less than a $1,000; and
- the employer has a perfect compliance history
What do we mean by "perfect compliance history?"
Well, a "perfect compliance history" means that you have, over a period of 12 months, made all deductions and remittances of CPP contributions, EI premiums, and income tax on time. You paid the GST/HST on time, and you also filed your T4 information returns and your GST/HST returns on time.
So, what does your monthly withholding amount include? It is the total of the CPP, EI, and income tax you deducted from your employees' remuneration, plus your share of CPP and EI.
An employer who has been in business for more than 12 months and who has monthly remittances of less than $3,000 can qualify to remit deductions on a quarterly basis. Note that this is different than an eligible new employer. If the employer chooses to do so, the CRA must receive the deductions on or before the 15th day of the month following the end of each calendar quarter.
A regular remitter is one that has an Average Monthly Withholding Amount (an AMWA) of less than $25,000. The CRA must receive the remittances on or before the 15th day of the month after the month the employees are paid. For example, if you pay your employees on October 5 and on October 19, the remittance due date is November 15.
The table on the screen indicates the types of remitters, according to the amount of the AMWA.
What is an AMWA? Well, it is determined by adding up all the CPP, EI, and income tax you sent to the CRA two calendar years ago. For example, in 2015 you made 4 remittances totalling $120,000. That amount is divided by 4 (the number of remittances), which equals to $30,000. This is the amount of the AMWA that will be used for 2017, and you would be considered a Threshold 1 remitter.
If your remitter type changes based on our calculations, we will inform you in writing, usually in December, when we have to receive your remittances in the coming year.
Let's discuss the due dates. As mentioned before, new employers will remit monthly (see Regular remitters on the screen) unless the CRA advises them that they can remit quarterly.
For a Threshold 1 remitter, when remuneration is paid from the 1st to the 15th of the month, the remittances are received on the 25th of the same month. For remuneration paid from the 16 to the end of the month, the remittances must be received by the 10th of the following month.
Threshold 2 remitters have to remit within three days following the last day of the defined pay period and have to remit through a Canadian financial institution.
Before you choose your remittance method, consider the following:
- If you are a Threshold 2 remitter, payroll deductions must be remitted electronically or in person at a Canadian financial institution on or before the due date.
- All payments made after the due date are assessed a penalty.
- Remittances are considered to have been made the day the CRA receives them. Choose the appropriate remittance method to make sure you meet your due date.
- If you remit deductions for more than one account, make sure you provide your payroll program account numbers and give a breakdown of the amounts intended for each account. We can then credit the right amounts to the right accounts.
- Regardless of your remittance method, if you are looking for your payment in My Business Account, allow 10 days for your remittance to be processed and posted on the account.
So, how can you make your remittances?
You can pay:
- through online banking
- by credit card
- by debit card
- by pre-authorized debit
- at your Canadian financial institution
- by wire transfer, if you are a non-resident; or
- through a service provider.
You are responsible for making sure the CRA receives your payment by the due date. If you are using a third-party service provider, you must clearly understand the terms and conditions of the services you are using. For more information about service providers, see the webpage titled "Pay by a service provider" on the CRA website.
Now, let's discuss remittance forms. The remittance form we send you depends on the type of remitter you are. They are personalized to help you send your remittance to the appropriate payroll account.
The PD7A – Statement of account for current source deductions now has multiple pages. What you see on the screen is the new PD7A, it includes a remittance voucher that you would use to remit your deductions, remittance account balance, account summary, arrears of account balances, if applicable, etc. This is the form the CRA sends to regular, quarterly, and monthly remitters. Fill out your remittance voucher correctly so we can process the remittance to your account (the bottom part of the remittance form not shown on the screen).
The PD7A(TM) – Statement of account, is used for accelerated remitters, Threshold 1 and 2. It is also the form used to remit source deductions if you have not received or have lost the PD7A-RB forms.
PD7A-RB forms are booklets the CRA gives to accelerated remitters (Thresholds 1 and 2) each December. They are used to remit deductions throughout the year. If you have been sending your source deductions electronically for at least six months, you will not receive a PD7A-RB booklet next December.
What should you do if you make a mistake on one of your remittances? Let's talk about different situations.
If you remitted too much in 2016, you can reduce your next 2016 remittance by the amount of the amount remitted in error. If you over-remitted in 2015, you can ask for the transfer of the credit or a refund. You can do so online using My Business Account. If you are an authorized representative, use Represent a Client. If you file your return on paper, you can attach a note to your T4 Summary indicating the reason for the overpayment and letting the CRA know if you want to transfer the amount to another account, to another year, or if you want a refund.
If you realize that you have a shortage on a remittance, you should remit the missing amount as soon as possible, either electronically, with another remittance form, or by writing a short letter with your account number and the pay period the shortage applies to. If your remittance is late, the CRA may apply a late-remitting penalty.
If your payment is not applied correctly, you can transfer payments within your various accounts online using My Business Account or you can call the business number at 1-800-959-5525 to have the payment applied to the correct account.
To report employees' income and the source deductions you withheld throughout the year from their paycheck, you will need to fill out a T4 slip or a T4A slip, a summary and an information return. An information return contains both the slip and the summary. Let's talk about each of them in more detail.
Most amounts paid to an individual by an employer are referred to as remuneration, salary, or wages. You have to fill out a T4 slip to report the following:
- salary, wages (including payment in lieu of termination notice), tips or gratuities, bonuses, vacation pay, employment commissions, and all other remuneration you paid to employees during the year;
- taxable benefits or allowances;
- retiring allowances;
- deductions you withheld during the year; and
- pension adjustment amounts for employees who accrued a benefit for the year under your registered pension plan or deferred profit sharing plan.
You have to fill out T4 slips for all employees who received remuneration from you during the year if:
- you had to deduct CPP/Québec Pension Plan (QPP) contributions, EI premiums, Québec Parental Insurance Plan (QPIP) premiums, or income tax from the remuneration; or
- the remuneration was more than $500 for the year.
You report income on a T4 slip for the year during which it was paid, regardless of when the services are done or performed, or if the employee is deceased. For example, if you pay your employee in January 2016 for income they earned in December 2015, you will have to report that income on their T4 slip for 2016 since that is the year it was paid.
If you provide employees with taxable group term life insurance benefits, you always have to prepare T4 slips, even if the total of all remuneration paid to the employee in the calendar year is $500 or less.
As an employer, you need to report, in dollars and cents, all amounts you paid during the year, except pension adjustment amounts, which are reported in dollars only.
- Report all amounts in Canadian dollars, even if they were paid in another currency. You can find information about average exchange rates on the CRA website.
- Do not enter hyphens or dashes between numbers.
- Do not enter the dollar sign.
- Do not show negative dollar amounts on slips; to make changes to previous years, send the CRA amended slips for the years in question. We will review how to amend T4 slips shortly.
- If you do not have to enter an amount in a box, do not enter "nil"—leave the box blank except for boxes 24 and 26.
- And do not change the headings of any of the boxes.
On the T4 slip, you will enter the name of your company, the employee's name and address
In Box 10, you will enter the province of employment; and in Box 12, the employee's SIN.
The total remuneration you paid to your employee during the calendar year is reported in Box 14. This may include taxable benefits you paid or provided to your employee during that year.
Enter the income tax you deducted in Box 22.
You report the CPP contributions you withheld in Box 16 or, if you withheld QPP contributions, you report them in Box 17.
Enter the employee's EI premiums in Box 18.
You also have to enter the EI insurable earnings in Box 24 and the CPP or QPP pensionable earnings in Box 26. You must always fill out these boxes even if there are no insurable earnings or no pensionable earnings.
If the employee paid RPP contributions, you enter the total withheld in Box 20. When you enter an amount in Box 20, you must enter the RPP or DPSP registration number in Box 50.
If the employee paid PPIP premiums, enter the amount in Box 55 and enter the QPIP insurable earnings in Box 56.
I mentioned earlier that the income reported in Box 14 may include the taxable benefits you paid or provided to your employee.
The total of taxable benefits the employee received is also entered at the bottom of the T4 slip in the "other information" area of the slip. There are different codes you can use depending on the type of taxable benefit. Chapter 2 of the RC4120, Employers' Guide – Filing the T4 slip and Summary, includes a list of codes you can use.
Now, let's see how to fill out the T4 Summary.
At the top of the T4 Summary, enter the 15-character payroll program account number in the employer's account number box. It is the number you use to send us your employees' deductions. Enter your operating or trade name as well as your address below the payroll program account number.
The boxes to fill out are the same as the ones the T4 slip. You enter the total in each box in Canadian dollars and cents from all the T4 slips you produced. If you have more than one payroll program account, you need to file a separate return for each account.
The totals you report on your T4 Summary have to agree with the totals you report on the T4 slips. Errors or omissions can cause unnecessary processing delays.
Now let's see what a T4A slip is. The T4A is used to report pension or superannuation payments and contributions; lump-sum payments; self-employed commissions; fees for services, patronage allocations; pension adjustments and other types of payments. The T4A slip is filled out the same way as a T4 slip for example, you have to enter the name of the person, their SIN, etc., only the boxes are different.
The taxable part of an annuity payment you paid to your employee, retired employee, a survivor or spouse of an employee, out of a superannuation or registered pension plan or fund, including disability benefits, are reported in Box 16.
Lump-sum payments are reported in Box 18. A lump-sum payment is the taxable part of a single payment out of a pension fund or a deferred profit sharing plan. A single payment may be due to a withdrawal from the plan, death of an employee or former employee, termination of, amendment to, or modification of the plan, or a reimbursement of an over-contribution to the plan.
There are special situations for amounts reported in Box 16 and Box 18, so be sure to consult the "Filling out the T4A slip" webpage.
Report the commission amounts you paid to an independent agent in Box 20, without any GST/HST paid to the recipient on those services.
Enter the total income tax you deducted from the recipient's remuneration during the year in Box 22. This includes the federal, provincial (except Quebec), and territorial taxes that apply. Leave the box blank if you did not deduct tax. Do not include an amount you withheld under the authority of a garnishee or a requirement to pay that applies to the employee's previously assessed tax years.
Payments from annuities are reported in Box 24. Remember that the taxable part of an annuity is reported in Box 16.
If you paid fees or other amounts for services that are not employment-related, you enter these amounts in Box 48, not including any GST/HST paid to the recipient for these services.
There is an "Other information" area at the bottom of the T4A slip. That is where you would enter codes for other types of payments. Refer to the CRA website for a list of the T4A codes and to what type of payment they apply.
An information return includes both the T4 or T4A slips and the Summary. You have to provide T4 and/or T4A slips to your employees and file your T4 and T4A information return on or before the last day of February following the calendar year the information return applies to. If the due date falls on a Saturday or a Sunday, your return is due the next business day.
We consider your return to be filed on time if we receive it on or before, or it is postmarked on or before the due date.
If you need to file early due to bankruptcy or if your business stops operating, you must file within 30 days from the day your business ends.
If the proprietor or partner of a business dies, the information return has to be filed within 90 days of the date of their death.
You must file your information returns by Internet if you file more than 50 slips for a calendar year.
If you file on paper, send the original T4/T4A Summary and the T4/T4A slips to the address listed on the screen.
If you have no amounts to report during a calendar year, do not send a summary.
So what happens after you file your T4 and T4A information returns?
When we receive your information return, we check to see if you have prepared it correctly. After an initial review, we process your return, which captures the information and performs various validity and balancing checks. If there are any problems, we contact you.
We also verify the calculations you made on every T4 slips to make sure the pensionable and insurable earnings you reported agree with the CPP and EI deductions you remitted.
If you receive a pensionable and insurable earnings review (a PIER), what should you do?
If you receive a PIER report, respond to the PIER by sending us your payment to cover the deficiencies shown or tell us why you believe the deficiency is not valid. You do not have to send us amended slips. We will prepare those once we review your reply.
You might notice you made an error on a T4 slip after filing your information return. Let's look at this in more detail.
So, how do you amend, cancel or add a T4 or a T4A slip? Let's start with amending a slip. If you notice errors before you file the T4 or T4A information returns, it is very easy to correct them by simply preparing new slips and removing any incorrect copies from the return. Be sure to also correct the summary if you need to.
If you notice errors after you file your information return, you will have to prepare an amended slip. You can file amended slips electronically using the Internet file transfer or web forms applications. To amend a slip over the Internet, change only the information that is incorrect and retain all the information originally submitted. Use summary report type code "A" and slip report type code "A." If you amend slips, we may contact you to ask why.
If you choose to file your amended return on paper, clearly identify the slips by writing "AMENDED" at the top of each slip. Make sure you fill out all the necessary boxes, including the information that was correct on the original slip. Send two copies of the amended slips to the employee. Send one copy of the amended slips to your tax centre with a letter explaining the reason for the amendment. You do not have to file an amended summary.
After you file your information return, you may discover that you need to send us more slips. If you have original slips that were not filed with your return, file them separately either electronically or on paper. Remember that if the total number of slips for a calendar year is 50 or more, they must be filed electronically.
When submitting additional paper slips, clearly identify the new slips by writing "ADDITIONAL" at the top of each slip. Send one copy of the additional slips to your tax centre with a letter explaining the reason for the addition.
If you choose to cancel slips on paper, clearly identify the slips by writing "CANCELLED" at the top of each slip. Make sure you fill out all the necessary boxes, including the information that was correct on the original slip. Send two copies of the cancelled slips to the employee. Send one copy of the cancelled slips to your tax centre with a letter explaining the reason for the cancellation.
In both cases, do not file an amended T4 or T4A Summary.
If you issue T4 or T4A slips to employees to replace copies that were lost or destroyed, do not send a copy to the CRA. Clearly identify them as "DUPLICATE" and keep them with your records.
If you are looking to expand your knowledge on any of the items covered in today's webinar, there are resources available to help you on the CRA website. Go to cra.gc.ca and visit our webpages for businesses.
The CRA offers a number of resources that can help you understand this and other payroll obligations. They can be found on our website on the payroll webpages. The T4001, Employers' Guide – Payroll Deductions and Remittances, is particularly useful.
In the RC4120, Employers' Guide – Filing the T4 Slip and Summary, you will find detailed instructions and explanations on how to complete T4 slips.
The RC4157 – Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary is a useful guide that explains how to calculate tax deductions, how to fill out the T4A slips and summary and how to address special payments.
There are also several useful webpages on payroll on the CRA website. Go to cra.gc.ca/payroll.
This is all the time we have. I would like to thank you for joining me today. I hope this webinar provided you with a better understanding of deducting, remitting and reporting payroll source deductions. This is the first webinar in a series of three providing step-by-step instructions. The next webinar will be on how to calculate input tax credits and how to complete a GST/HST return.
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