How to use the payroll deductions tables
Hello. Thank you for joining me for this webinar on how to use the payroll tables.
Today's webinar is the last in a three-part series giving step-by-step instructions on employers' reporting requirements. My name is Maurice, and I am your presenter today. Also, I would like to mention that today's webinar is being recorded and will be posted on the Canada Revenue Agency (CRA) website.
During today's webinar, we will review Guide T4032, Payroll Deductions Tables. We'll discuss who should be using the guide and take a closer look at its different sections. We'll also talk about Guide T4008, Payroll Deductions Supplementary Tables, and make a brief mention of the Guide T4127, Payroll Deductions Formulas for Computer Programs.
Please note that the current payroll deduction information, the payroll deductions tables and related guides are available on the CRA's website. They are no longer being printed. However, if you need a printed copy, you can call the CRA and make a special request to have one printed and mailed to you.
Guide T4032, Payroll Deductions Tables, is intended for employers and payers. It will help you calculate the payroll deductions for your employees and pensioners.
The Guide T4032 is available on the CRA website. There is a different one for each province and territory. The guide has sections of tables showing the amounts to deduct for federal and provincial income tax, Canada Pension Plan (CPP) contributions and employment insurance (EI) premiums.
You can find these sections in the payroll tables:
- Section A has general information on provincial indexing for the year, surtax rates, the personal amount, and claim codes.
- Section B is where you will find the CPP contributions tables.
- Section C has the EI premiums tables.
- Sections D and E include the federal, provincial and territorial income tax deduction tables.
Let's look at each section in more detail.
Section A has a lot of information. Let's start with which provincial or territorial tax table to use.
To know which tax table to use, you have to figure out your employee's province or territory of employment. This depends on whether or not you require the employee to report for work at your place of business.
If the employee reports for work at your place of business, their province or territory of employment is the province or territory where the employee reports for work.
If you do not require your employee to report for work at your place of business, their province or territory of employment is the province or territory your business is in and from which you pay their salary.
The federal maximum pensionable earnings for 2016 are $54,900 and the annual basic exemption is $3,500. This means that if your employee earns more than the maximum pensionable earnings, there might be a time near the end of the year where you will have no contributions to deduct from that employee's pay.
So, the maximum CPP contributions that employees can make are $2,544.30 for 2016. Since the employer contributes the same CPP amount as the employee to the CPP, their maximum contribution is also $2,544.30.
For 2016, the federal maximum insurable earnings are $50,800 and the maximum an employee will have to contribute is $955.04.
The employee contributes 1.88% of their salary. The employer's contributions are calculated at 1.4 times the employee's contributions.
But what does this mean? It means you have to multiply the EI premiums you deduct from your employee's pay by 1.4 to get the amount you have to contribute for your share of EI premiums.
For example, you deducted $37.60 from your employee who earned $2,000 in the first pay period of the year. You would multiply $37.60 by 1.4, which would give you $52.64. This is how much EI you would have to contribute to that employee.
The total personal amount an employee claims on his or her Form TD1, Personal Tax Credits Return will determine which claim code you use. For 2016, the claim amounts that correspond to the federal claim codes are not the same as the claim amounts that correspond to the provincial claim codes.
Let's take a look.
The table on the screen explains which federal claim codes to use, depending on the amount of deductions your employee is allowed to claim.
A claim code 0 applies to an employee who is a non-resident or to an employee who has more than one employer or payer at the same time.
Claim codes 1 to 10 correspond to the total claim amount the employee put on their Form TD1. When you use the T4032 payroll tables, you will take the amount of taxes to deduct from the appropriate claim code column. I will show you how in a few slides.
As I mentioned earlier, in Section B you will find the amount of CPP contributions you need to deduct from your employee's pay. The annual basic exemption is built into the CPP tables. Find the pages in Section B that correspond to your pay period.
Let's see how you would do that.
For this example, we selected 26 pay periods during the year, which means the employee is paid every two weeks. The employee lives and works in Ontario and is paid $2,000 for each pay period. To find the range that includes the employee's gross pay (this includes any taxable benefits), look down the Pay column. For $2,000, we find the range from $1,999.97 to $2,000.16.
Next to the Pay column, you will find the CPP contribution column. Use the amount from that column to deduct from the employee's pay. In this example, we see that it's $92.34. That's the CPP amount you will deduct from the employee's pay.
It is important to note that when the employee reaches the yearly maximum CPP contribution of $2,544.30, you should not and cannot deduct any more CPP from his or her pay.
For the EI part of the deductions, you will need the insurable earnings amount. How do you find the insurable earnings amount? It's easy. You multiply the gross amount of remuneration by the EI premium rate of 1.88%. That is the amount you use to find the EI premiums to deduct from the employee's pay.
To make it easy for you, the insurable earnings in Section C are already factored into the table. So you would use the amount of the employee's gross remuneration to find the amount of EI premiums to deduct from their pay.
Using the same example again, the employee earned $2,000 for the pay period. Find the range for $2,000 in the Insurable Earnings column for that period. The range in Guide T4032 is between $1,999.74 and $2,000.26, as shown on the screen. This gives an EI deduction of $37.60.
When using the income tax tables to figure out your employees' or pensioners' total income tax deductions, you have to look up the amounts in the federal tax table in Section D and in the provincial tax table in Section E. We will see the provincial tax tables in a few slides.
To deduct the federal tax from your employee's pay, find the pages in Section D that correspond to your pay period. To find the range that corresponds to your employee's taxable income (this includes any taxable benefits), look down the Pay column. In the row under the appropriate claim code, you will find the amount of federal tax that you should deduct from your employee's pay.
For our example, the employee has 26 pay periods for the year and $2,000 of gross pay. The employee has a claim code 1. The employer would deduct $220.95 in federal income tax from the employee's pay.
As we mentioned before, the claim code depends on the information on the employee's Form TD1, Personal Tax Credits Return. The employee fills out this form and gives it to their employer at the start of employment or if there is a change in their circumstances.
To deduct the provincial tax from your employee's pay, find the pages in Section E that correspond to your pay period. To find the range that includes your employee's taxable income (this includes any taxable benefits), look down the Pay column. In the row under the appropriate claim code, you will find the amount of provincial tax that you should deduct from the employee's pay.
As you know, in our example the employee is paid every two weeks and has a claim code 1.
So the employer should deduct $114.25 in provincial (Ontario) income tax from the employee's pay.
To figure out the total tax you will deduct for the pay period, you must add the federal and provincial tax amounts we found in sections D and E as well as the CPP contributions and EI premiums that we found in sections B and C.
Even if the period of employment that you pay a salary for is less than a full pay period, you have to continue to use the tax deductions table that corresponds to the regular pay period.
In our example, we calculated the amounts to be deducted from the employee's gross pay of $2,000. The total deductions would be $465.14, making the employee's net pay $1,534.86.
Now let's calculate the employer's share of the contributions.
Employers contribute the same amount for CPP as their employees. In our example, it is $92.34.
For EI, the employer generally contributes 1.4 times the employee's EI premiums. In this case, the employer would contribute $52.64, which is the employee's contribution of $37.60 multiplied by 1.4.
The total of the employer part of CPP and EI in this example is $144.98.
The remittance the employer sends to the CRA is the total of both the employee deductions and the employer shares of CPP and EI for the pay period.
In our example:
- the employee's deductions are $465.14
- the employer's share is $144.98
- the total remittance the employer would send to the CRA is $610.12
If you were with us during the webinar on how to deduct, remit, and report payroll source deductions, you probably remember the table on the screen. So I will not go into it in great detail. I will simply mention that it shows the types of remitters, according to the amount of the average monthly withholding amount (the AMWA).
What is an AMWA? It's the amount you get 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 four monthly remittances totalling $120,000. You divide that amount by four (the number of remittances), which equals $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 tell you in writing, usually in December, when we have to receive your remittances in the coming year.
What happens if you do not deduct CPP, EI, and income tax from your employee's remuneration? The CRA can charge a penalty of 10% of the amount of CPP, EI, and income tax you did not deduct.
If you are charged this penalty more than once in a calendar year, the CRA will apply a 20% penalty of the amount not remitted for the second and later remittances, if you did it knowingly or in circumstances of gross negligence.
Okay. But you're asking what if my pay periods are irregular or not included in Guide T4032.
For example, you may have employees that are seasonal and have 13 pay periods a year. Or you may even pay your employees daily and have 240 pay periods a year.
In those situations and similar ones, you would use Guide T4008, Payroll Deductions Supplementary Tables. This guide works the same as Guide T4032, which we have just been talking about. The explanations I gave for Guide T4032 will work for this guide as well.
There is also Guide T4127, Payroll Deductions Formulas for Computer Programs. It's the payroll software providers and developers, so I won't cover it in this webinar.
You can sign up for My Business Account, a secure online service that lets you interact electronically with the CRA. It offers a variety of options related to your payroll account, such as filing a return, viewing return status, getting account balances, and more.
- It's convenient: 21 hours a day, 7 days a week.
- It's easy to use: when registered, simply log in with your CRA user ID and password.
- It's fast and secure.
If you are not already registered for My Business Account, you will need to register before you can use it to interact with the CRA.
To register, go to cra.gc.ca/mybusinessaccount.
If you are looking to know more about any of the items I covered in today's webinar, here are a few resources I recommend.
If you want more information about payroll deductions, see Guide T4001, Employers' Guide – Payroll Deductions and Remittances.
If you want more information about taxable benefits and allowances, Guide T4130, Employers' Guide – Taxable Benefits and Allowances, is for you.
Employees can now fill out, save, and print Form TD1, Personal Tax Credits Return, online. Don't forget that there is a federal Form TD1 and a separate TD1 for each of the provinces and territories. Keep the completed Form TD1 in your employee's file. You do not have to send a copy to the CRA.
You can find videos and recorded webinars for businesses on the CRA website. In particular, there is a series that gives information on payroll for new small businesses. There are webinars with information on payroll basics.
You can also follow us on Twitter @CanRevAgency.
The CRA will present a series of payroll podcasts on taxable benefits. Stay tuned.
This is all the time we have. I want to thank you for joining me today. I hope this webinar has given you a better understanding on how to use Guide T4032, Payroll Deductions Tables. This is the last webinar in the three-part series providing step-by-step instructions on employers' reporting requirements. We will post all three webinars on the CRA website soon.
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