Payroll basics: Filing and beyond
Hello, my name is Janice Hurley and I will be your presenter today. Welcome to our webinar Payroll basics – Filing and beyond. This presentation is the last installment in our four part series on Canadian payroll basics for this year. It’s for people who are new to payroll, or who want a refresher on the basics. Employees’ who want a better understanding of what’s on their T4 slip will also find it useful.
In the previous presentations we covered:
- How to decide if a worker is an employee or self-employed where we covered the factors that are considered in making this decision.
- How payroll works where we talked about withholding and remitting source deductions; how to fill out a TD1 form; what claim codes are used for; and how to use the Payroll Deductions Online Calculator also known as PDOC.
- The bonus method where we talked about withholding on bonuses, vacation pay, overtime, and lump-sum payments; and how to open a payroll account and make remittances.
If you missed any of these webinars, a recorded version will be available soon on the CRA website.
Since it’s almost the end of the year it’s time to start thinking about T4 slips that you need to complete and provide to your employees’. So today we will talk about:
- when to complete a T4 slip;
- what information is included on a T4 slip;
- how to prepare and file the T4 Summary and T4 slips;
- making changes after you file the T4 information return;
- the new small business job credit; and
- books and records.
Let’s quickly review the responsibilities, which we talked about in our second webinar - How payroll works. As an employer, you must:
- deduct CPP or QPP contributions, EI or QPIP premiums, and income tax;
- hold these amounts in trust;
- remit these deductions, along with the employer’s share, to the CRA; and
- report the income and deductions on a T4 information return.
Your employees’ will use the information on the T4 slip to file their personal tax return.
Today, we’ll focus on how to complete the T4 slips and the T4 Summary. We will also provide you with information about filing the T4 information return.
The T4 slip is the form that we use to report employment income and deductions. The first step is to decide if you need to complete a T4 slip for each employee.
You have to complete a T4 slip for each of your employees who received employment income from you during the year if:
- the total employment income earned by the employee is more than $500; or
- you had to deduct any of the following from your employee’s pay:
- Canada Pension Plan/Quebec Pension Plan;
- Employment Insurance or Quebec Parental Insurance Plan premiums; or
- income tax.
The income on the T4 slip is reported for the year in which it was paid, regardless of when the services were performed. For example, if a pay cheque dated in January 2016 covers income earned in the last days of December of 2015 that income must be reported on the T4 slip in 2016, since it was paid in that year.
I’m sure you’ve all seen a T4 slip, but here’s a sample of what one looks like. Let’s go over the different areas of the slip.
First, let’s look at the identification areas. In the employer information area, you enter the employer's name which is your operating or trade name. This should be the same name that appears on your remittance voucher. You can also add your business address in this box.
The employer’s payroll account number is entered, but this information shouldn’t appear on the copies you give your employees.
Next, you enter the employee’s social insurance number or SIN. If your employee hasn’t given you their SIN, you have to make a reasonable effort to get it. Make sure you keep proof of all your efforts to get the employee’s social insurance number, or you may have to pay a penalty of $100.
In the employee's name and address area you enter the employee's last name, followed by their first name and initial. You’ll also enter the employee's address, including the province, territory, or U.S. state, Canadian postal code or U.S. zip code, and country. If you know that the address you have for an employee isn’t correct, don’t send the employee's T4 slip copies to that address. Document why the copies weren’t sent and keep proof of your efforts to get the correct address. Keep this information with the T4 slips in the employee's file.
Let’s move on to the income fields that need to be filled in. First, let’s talk about what is included in Employment income.
It’s not just salary and wages that are reported on a T4 slip as employment income. Here are some of the other types of remuneration that need to be included in the Employment income in Box 14:
- taxable benefits or allowances
- vacation pay
- and tips or gratuities
Employment income isn’t the only thing that gets reported on the T4 slip. Here is a list of other information that will need to be reported if it applies.
In the year box enter the four digits of the calendar year in which you paid the remuneration to the employee.
In Box 10, enter the abbreviation for the province of employment.
You will also have to fill in these boxes if they apply:
- CPP or QPP contributions in Boxes 16 or 17
- EI premiums in Box 18
- Income tax deductions in Box 22
- Pension adjustment or PA amounts in Box 52
- Registered Pension Plan or RPP contributions in Box 20
- Union dues in Box 44
- Donations in Box 46
- EI Insurable earnings in Box 24
- CPP or QPP Pensionable earnings in Box 26
- and other information.
When you are filling in the T4 slip make sure that you fill in all boxes and codes which apply to each employee. You can find detailed information on how to complete a T4 slip in the RC4120 Employers' Guide – Filing the T4 Slip and Summary.
Let’s look at the insurable earnings and pensionable earnings boxes a little closer.
Most employment income in Canada is insurable. In Box 24 you enter the total amount of insurable earnings you used to calculate the employee's EI premiums that you deducted up to the maximum insurable earnings for the year. In Box 18 you report the employees’ EI premiums deducted.
If there are no insurable earnings for the entire year, enter "0" in box 24 and leave box 18 blank.
If an employee earns less than the maximum insurable earnings, in many cases, boxes 14 and 24 will contain the same amount.
Box 24 should never contain an amount greater than the maximum insurable earnings. Even if an employee earns more than the maximum insurable earnings the employer should only report the maximum in box 24 ($49,500 for 2015).
The CPP is a mandatory pension plan and employees generally hold pensionable employment income in Canada, so most employment is pensionable.
In Box 26 you enter the total amount of pensionable earnings you used to calculate the employee's CPP or QPP contributions that you deducted up to the maximum pensionable earnings for the year. Report the employees’ contributions deducted for CPP in Box 16, or QPP in Box 17.
If there are no pensionable earnings for the entire reporting year and box 16 is blank, enter "0" in box 26.
When an employee earns less than the maximum pensionable earnings, in many cases, boxes 14 and 26 will be the same amount.
Box 26 should never contain an amount greater than the maximum pensionable earnings. Even if an employee earns more than the maximum pensionable earnings, in 2015, the largest amount reported in box 26 would be $53,600.
Next, check and see if any of the exemptions that need to be reflected in Box 28 apply.
The CPP (Canada Pension Plan) or QPP Quebec Pension Plan exemption will apply if your employee is:
- considered disabled under the CPP or the Quebec Pension Plan; or
- under 18 or over 70 years of age; or
- 65 to 70 years of age and has given you Form CPT30, Election to Stop Contributing to the Canada Pension Plan, or Revocation of a prior Election with parts A, B and C completed.
There are a number of situations where the EI exemption will apply. The most common are:
- employment when you and your employee do not deal with each other at arm's length; or
- when a corporation employs a person who controls more than 40% of the corporation's voting shares.
For a detailed list, go to chapter 3 of the T4001 Guide.
Information on PPIP (provincial parental insurance plan) exemptions can be found on the Revenu Quebec website.
Next, let’s look at the “other information” area. This area at the bottom of the T4 slip has boxes for you to enter codes and amounts that relate to employment commissions, taxable allowances and benefits, deductible amounts, fishers' income, and other entries if they apply.
The boxes aren’t pre-numbered as they are in the top part of the slip. You only enter the codes and amounts that apply to the employee. A list of these codes can be found on the back of the T4 slip.
The back of the T4 slip has information about what should be reported in each of the boxes and codes on the T4 slip. It also indicates to the employee where to report these amounts on their personal income tax return.
For example Box 14 – Employment income is entered on Line 101.
It also indicates to the employee which codes and amounts don’t need to be reported. For example, if an amount is reported as code 34 “Personal use of employer’s automobile or motor vehicle”, it tells the employee this amount has already been included in box 14, so they don’t need to report it separately.
Remember our hypothetical employees John and Mary from our previous webinars? We bring them back in this webinar.
- John is 25 years old, a single parent who also attends university part-time. He earns a salary of $26,000 per year.
- Mary is 16 years-old and doesn’t go to school. She earns $12.50 per hour and works 40 hours a week. Mary was paid a bonus of $2,600 during the year, and a pay out of vacation pay for holidays not taken. She also worked some overtime.
The next step will be to prepare T4 slips for both John and Mary.
Let’s look at what will be included in Employment income in box 14 for John and Mary.
John just has his salary of $26,000 to be included in employment income, while Mary will need to include the total of her wages, bonus, vacation pay, and overtime pay to give her employment income of $30,000.
Now let’s start to fill in John’s T4 slip. His employment income will be his salary of $26,000. He has no other benefits that need to be reported, but we will add up all his deductions for CPP, EI and tax and report these in the appropriate boxes on the T4 slip. Even though his employment income is the same as his insurable and pensionable earnings, you still have to fill in Boxes 24 and 26.
Here is what John’s T4 slip will look like. It’s fairly straight-forward as he only received salary.
All the pay he received and the deductions for CPP, EI and income tax are added up and reported on John’s T4 slip.
In John’s situation, his pensionable earnings and insurable earnings are the same as his employment income, but you must report these in boxes 24 and 26.
Now, let’s look at Mary’s pay information. She worked 40 hours every week, and made $12.50 per hour, so her hourly wages will be $26,000.
In addition to her hourly wages, Mary received a bonus of $2,600 and vacation pay of $1,200 because she took a pay-out for holidays not taken. She also worked overtime and made an additional $200.
All of these types of payments need to be added up to arrive at her employment income, which is reported in Box 14 on her T4 slip.
She did not receive any other income that needs to be reported. Next, you will add up all her deductions for EI and tax and report them in the correct boxes on the T4 slip. She has no CPP deductions because she is 16 years old.
Here is what Mary’s T4 slip will look like. Remember, Mary is just 16 so we have a checkmark (or an X) in Box 28 showing she is CPP exempt. Her CPP pensionable earnings will be zero, but we still need to fill in Box 26. We have also filled in the EI insurable earnings in Box 24.
T4 slips can be prepared over the Internet, by fillable form, or on paper. T4s can also be filed using web forms. You can include up to 100 slips with each submission.
If you use payroll, commercial, or in-house developed software to manage your business, you can submit files of up to 150 MB over the internet using the Internet file transfer application.
Paper T4s can be created using CRA pre-printed blank slips, approved customized slips, or by filling in the fillable form on our website. There are limits to the number of slips that can be filed by paper – 50 or less. If an employer has over 50 slips, they must be submitted electronically.
You can find more information on completing and filing information returns on our website.
When you are preparing the T4 slip, you may find that you deducted more CPP or EI from your employee's earnings than you should have, and you didn’t reimburse the overpayment to the employee during the calendar year. Don’t adjust the amounts you reported on the T4 slip. We will credit the excess CPP or EI to the employee when he or she files his or her income tax and benefit return.
You can apply for a refund of the employer’s portion of the overpayment by completing Form PD24, Application for a refund of over deducted CPP contributions or EI Premiums, and sending it with your paper-filed T4 information return. Or, if you filed your return electronically you can mail it to your tax center.
You can only make this request within four years from the end of the year in which the overpayment occurred for CPP and within three years for EI.
If an employee leaves during the year, you should calculate the employee's earnings for the year to date, prepare the T4 slip, and give it to the employee. You will need to keep a copy of the slip for the employer and the CRA. You will include the CRA copy with your T4 Summary when you file it.
You also have to prepare a Record of Employment or ROE for each former employee. Generally, you have to send it to them within five calendar days of either the date their earnings stop, or the date you became aware of the interruption of earnings, but special rules may apply. More information on the Record of Employment can be found on the Service Canada website, or you can look at the publication called How to Complete the Record of Employment Form, on their website, or you can call Service Canada at 1-800-622-6232.
Now, let’s talk about the T4 information return which consists of the T4 slips and the T4 Summary.
This return has to be filed on or before the last day of February following the calendar year to which the information return applies. If the due date falls on a Saturday, a Sunday, or a public holiday, your return will be due the next business day. For the 2015 T4 information return, the due date will be February 29th, 2016.
We consider your return to be filed on time if we receive it or it is postmarked on or before the due date. If you don’t file it on time, you may have to pay a penalty.
You will need to complete and file a separate T4 return for each payroll account you have.
You will need to total all the T4 slips and report these totals on the T4 summary:
- employment income
- the employees’ CPP contributions and EI premiums
- the employer’s CPP contributions and EI premiums
- income tax deducted; and
- employer remittances.
As you may recall from the previous presentation “how payroll works”, the goal is for the employer to balance to zero, the total amounts withheld from employees plus the total amounts of employer portions of CPP and EI should equal the total amount the employer remitted to the CRA throughout the year.
If there is a difference you either sent CRA too much money or not enough.
Here is a sample of what the T4 Summary looks like.
You prepare the T4 summary by entering the totals from all the T4 slips. Make sure the totals on the summary agree with the totals reported on the T4 slips. Errors or omissions can cause delays in processing of the information return.
You also enter the total of all the amounts deducted, and the total of all the amounts remitted to the CRA. If all the deductions taken from employees were remitted, these two numbers should be the same.
Now let’s look at the T4 Summary prepared with the information from John and Mary’s T4 slips.
John and Mary are the only employees of ABC Company Limited in 2015. The summary is filled in by adding up all the information on the slips. In this case, we will add up the employment income, income tax deducted, CPP, both the employees’ and employer’s matching share, and both the employees’ and employer’s shares of EI premiums. If you recall, we calculated the employer’s share of EI premiums at 1.4 times the employees’ premium.
In reviewing the T4 Summary we can see that ABC Company has calculated all its payroll remittances, and paid them in full. Also the total deductions reported are the same as the total remittances, so the employer has balanced to zero.
If the amount of deductions and the amount remitted don’t match, there will be a difference on the T4 Summary. When the total deductions are less than the amount remitted, you may have sent CRA too much money. Where the total deductions are more than the amount remitted, you may not have sent enough. If there is a difference on the T4 Summary you should review your calculations.
We will send a PD4R Tax deduction, Canada Pension Plan and Employment Insurance Discrepancy Notice when there is a difference. We will talk about this in detail a little later.
If you’ve reviewed your calculations and there is an overpayment, you can have it refunded to you, transferred to the current year, or to another of your CRA accounts.
If there is a balance due you will need to send a payment. When a payment is made, and it’s received after your final December remittance due date, it will be considered late. You may have to pay a penalty and interest.
What happens after you file?
When we receive your information return, we check it to see if you have prepared it correctly. After a first review, we enter your return into our processing system, which captures the information and performs various validity and balancing checks. If there are any problems, we may contact you.
We also check the calculations you made on the T4 slips to make sure that pensionable and insurable earnings you reported agree with the CPP and EI deductions you reported. If there is a deficiency we will issue a pensionable and insurable earnings review or PIER report.
Let’s look at what a PIER report is in more detail.
Each year, we check the calculations you made on the T4 slips that you filed with your T4 Summary. We do this to make sure the pensionable and insurable earnings you reported agree with the deductions you withheld.
The CRA makes sure employees contribute the proper amount of CPP and EI because improper amounts may affect the CPP or EI benefits that they receive in the future.
When there is a difference between the CPP or EI required and those you reported, we print the figures on a PIER listing.
We will send you the listing showing the name of the affected employees and the figures we used in the calculations. We will also include a PIER summary that shows any balance due.
If you agree with our calculations, you are responsible for remitting the balance due.
There is no need to send the PIER listing back. We only need the listing if you are correcting the figures or a social insurance number, or are submitting information we should update on our file.
If a payment or reply is not received by the reply date noted on the PIER report, we may also issue a notice of assessment that includes applicable penalties or interest, or both.
The CRA will prepare and send you any amended slips that result from a PIER review.
In addition to reviewing the T4 information return for the PIER deficiencies, the CRA reviews the totals reported. We may also find differences between the amounts remitted to your payroll account during the year and the total of amounts we processed from your T4 return.
One of these three situations may occur:
- you could balance to zero;
- an overpayment when the total amounts reported on the T4s are lower than the amounts paid for the year;
- or a balance due when the total amount reported on the T4s is higher than the amounts paid for the year.
If a difference is found, a Tax deduction, Canada Pension Plan and Employment Insurance Discrepancy notice (PD4R) is issued.
After the PD4R is issued:
- you, as the employer have to respond to this notice and explain the difference.
- your response must be sent to the appropriate tax centre, or through your My Business Account;
- if a response is not received, and you have a balance due, a notice of assessment is issued.
After filing your information return, you may notice errors or omissions in the information provided. If you make a mistake it’s important to correct it, don’t just leave it.
If you need to amend or cancel a slip, you can do this either by Internet or paper. If you file your amended or cancelled return on paper, clearly identify the slips as either amended or cancelled slips by writing “AMENDED” or “CANCELLED” at the top of each slip. Send two copies of the slips to the employee and one copy to any tax centre with a letter explaining the reason for the amendment or cancellation. You don’t have to file an amended T4 Summary.
If you have original slips that you did not file with your return, you can file them separately either electronically or on paper. When sending additional slips on paper, clearly identify the new slips by writing “ADDITIONAL” at the top of each slip. Send one copy of the additional slips to any tax centre with a letter explaining the reason for the addition.
If you issue T4 slips to replace copies that are lost or destroyed, clearly identify them as “DUPLICATE” copies, and keep them with your records. You don’t need to send us a copy.
If you file your T4 information return late or fail to file the return, we may assess a penalty. Each slip is an information return, and the penalty we assess is based on the number of information returns you filed late. The penalty is $100 or the amount calculated according to this chart, whichever is more.
If our hypothetical employer were to late file the T4 information return, the penalty would be $100 as our T4 return included two T4 slips – John and Mary’s.
If you are filing more than 50 T4 slips you have to file electronically. If you have to file your T4 information return electronically and don’t do so, we may assess a penalty. Again the penalty we assess is based on the number of information returns you filed in the incorrect manner. The penalty is the amount calculated according to this chart.
Some employers may be eligible for a new small business job credit for 2015 and 2016.
You don’t have to apply for this credit. The CRA will establish your eligibility for 2015 and 2016 separately, based on the T4 information filed for each of those years, and then calculate your credit.
The CRA will first apply the credit to any outstanding account balances and then refund the difference.
This credit will be refunded to small businesses that have paid employers’ EI premiums of $15,000 or less on all their payroll accounts in 2015 or 2016 or both. The maximum employer refund is approximately $2,230.
Just to put this into perspective, an employer with 11 full-time employees earning the maximum EI insurable earnings of $49,500 in 2015 would qualify for this credit. For the 11 employees the employer would have paid $14,331.24.
Lastly, remember that you have to keep your books and records for at least 6 years from the end of the year they relate to. You can find information about the books and records you have to keep on the CRA website or in Information circular 78-10R5 Books and Records – Retention and Destruction.
On the screen are some common types of payroll information your records should include.
This is the last presentation in this series. Here’s what we have learned so far:
How to decide if a worker is an employee or self-employed – where we went over the factors that are considered in making this decision.
How payroll works – where we talked about withholding and remitting source deductions; how to fill out a TD1 form, what claim codes are used for; and how to use the Payroll Deductions Online Calculator also known as PDOC.
The bonus method – where we talked about withholding on bonuses, vacation pay, overtime, and lump-sum payments; and, how to open a payroll account and make remittances.
And today’s presentation – where we talked about how to fill in T4 slips and the T4 Summary, how to file a T4 Information return, and what happens after you file. We also talked about the new small business job credit, and books and records.
If you missed any of these webinars, a recorded version will be available soon on the CRA website.
Here is a list of some of the common resources we referred to throughout this presentation. You can also contact a CRA business enquiries agent by dialing the number indicated.
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