Calculating CPP contributions, EI premiums, and income tax deductions - Segment 7

Transcript

Host: Welcome to the segment called Calculating CPP contributions, EI premiums, and income tax deductions, part of the CRA's Payroll Information for a New Small Business video.

This segment mentions links where you can get more information. You can find all these links on the Related links for this segment.

I'm Kathleen Sinclair.

With me is Frank Stewart.

Welcome Frank. Subject matter expert: Thank you Kathleen.

Host: Let's start with Canada Pension Plan contributions. What should an employer know, before calculating them?

Subject matter expert: Something many new employers don't know is that you have to deduct Canada Pension Plan, or CPP, contributions, from the employee's pensionable earnings up to the yearly maximum.

Also, your employer share of CPP is the same amount as the CPP contributions you deduct from your employees' wages.

So if you deduct $100 of CPP from your employee's wages, you also contribute $100. Include both amounts when you send your payroll remittance to the CRA.

Host: Okay, now let's deal with employment insurance premiums. What should an employer know about calculating those?

Subject matter expert: There are a couple of things to keep in mind.

First, you have to deduct employment insurance, or EI, premiums from each dollar of your employee's insurable earnings up to the yearly maximum.

Second, your employer share of EI is generally 1.4 times the amount of EI premiums you deduct from your employee's wages.

So for example, if you deduct $100 of EI from an employee, you have to contribute $140 as an employer. Include both amounts when you send your payroll remittance to the CRA.

Host: Is there an easy way to calculate CPP contributions and EI premiums?

Subject matter expert: Yes, you can use the CRA's Payroll Deductions Online Calculator, called PDOC for short.

With this calculator, you can enter the amount you have already deducted for the CPP contributions and EI premiums during the year. Another helpful feature is that the calculator will automatically stop calculating a deduction when the employee has reached the yearly maximum.

The calculator will also tell you what the employer contributions are, under Employer Summary.

For more information, go to the segment of the video called Using the Payroll Deductions Online Calculator.

Host: Frank, can you tell me when I have to deduct income tax from an employee's pay?

Subject matter expert: You have to deduct income tax from most types of payments to employees, including salary, bonuses, most taxable benefits, certain tips and gratuities, and certain amounts paid while the employee is on leave. This is not a comprehensive list.

For more information on deducting income tax, go to www.cra.gc.ca/payroll.

More information is also available in Chapter 5 of the following publication:

Guide T4001, Employers' Guide - Payroll Deductions and Remittances.

Host: So now that employers know what they have to deduct in terms of CPP and EI, what do they need to keep in mind when deducting income tax?

Subject matter expert: Form TD1, Personal Tax Credits Return, and its provincial or territorial equivalents contain certain tax credits that individuals can claim when they file their individual income tax and benefit return. By claiming the tax credits on the TD1, the employee is, in effect, reducing the amount of income tax that the employer will deduct from their wages each pay period. In other words, the more personal tax credits that the employee is eligible to claim, the less income tax will be deducted from the employee's pay.

Remember that the employer will calculate the tax withholding, taking into account only the basic personal amount, unless the employee fills out the personal tax credits return. The employee should always complete Form TD1 at the start of their employment or whenever their status changes.

Host: Is there a good tool to calculate income tax deductions?

Subject matter expert: As with calculating CPP and EI, you can use the PDOC.

The calculator uses the province of employment, the type of payment received, and the information from the TD1, to figure out how much income tax to deduct from the employee's pay.

This tool can also calculate deductions if you pay bonuses or vacation pay or if you give employees a retroactive pay increase.

For more information, go to the segment of the video called Using the Payroll Deductions Online Calculator.

Host: Is there anything else employers should know about deducting income tax?

Subject matter expert: Yes, as an employer you should be aware that there are no age limits for income tax.

There is also no employer contribution required for income tax. An employer remits only the amount deducted from the employees pay.

Host: Where can I find more information about income tax deductions and calculating CPP contributions and EI premiums?

Subject matter expert: For more information, go to www.cra.gc.ca/payroll.

Host: Thank you Frank.

This concludes the segment on Calculating CPP contributions, EI premiums, and income tax deductions, part of the CRA's Payroll Information for a New Small Business video.

Thank you for watching.

Report a problem or mistake on this page
Please select all that apply:

Thank you for your help!

You will not receive a reply. For enquiries, contact us.

Date modified: