Correcting reporting errors and salary overpayments

On March 1, 2020, amendments to the Canada Pension Plan (CPP) came into force that affect employers who overpaid salary because of a clerical, administrative or system error. Employers can now recover the CPP contributions withheld and remitted on salary overpayments directly from the Canada Revenue Agency. This will allow employees to repay only the net amount.

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Canada Pension Plan (CPP) recovery and overpayment

CPP overpayments

If you overdeducted CPP contributions from your employee and did not reimburse them, report the total CPP deductions (including the overdeducted amount) and the correct pensionable earnings on the employee’s T4 slip. 

If you become aware of their CPP overcontribution after you filed their T4 slip, go to CPP and EI overdeductions.

If you become aware of their CPP overcontribution during the same year, you should:

Do not include the reimbursed amount on the T4 slip.

For more information about CPP overpayments, go to CPP overpayment and recovering CPP contributions.

Recovering CPP not previously deducted

If you were required to deduct more CPP than you withheld from your employee in a previous year and you recovered it through an additional deduction in the current year:

Employment insurance (EI) recovery and overpayment

EI overpayments

If you overdeducted EI premiums from your employee and did not reimburse them, report the total EI premiums (including the overdeducted amount) and the correct insurable earnings on the employee’s T4 slip.

If you became aware of their EI overdeduction after you filed their T4 slip, go to CPP and EI overdeductions.

If you become aware of their EI overcontribution during the same year, you should:

Do not include the reimbursed amount on the T4 slip.

For more information about EI overpayments, go to EI overpayment and recovering EI premiums.

Recovering EI not previously deducted

If you were required to deduct more EI than you withheld from your employee in a previous year and you recovered it through an additional deduction in the current year:

Salary overpayments

If you make an overpayment of salary, wages, or other remuneration to an employee, how you correct this will often depend on the reason the employee was overpaid and the year in which the employee repaid the amount.

You may need to correct overpayments in the following situations:

Note

If you let your employee repay an overpayment in instalments, you may have to calculate a taxable interest benefit. For more information, go to Loans – interest-free and low-interest.

Employee did not perform their duties

Your employee should repay you the gross amount of the salary overpayment when all of the following conditions are met:

Note

If the salary overpayment is the result of a clerical, administrative, or system error, follow the instructions under Clerical, administrative, or system error.

 

Include the salary overpayment and the deductions withheld on the overpayment on the employee’s T4 slip.

Whether your employee repays you in the same year or a different year, do not amend their T4 slip. Give your employee a letter confirming the tax year when the overpayment was included in their income, as well as the date, reason, and amount of repayment you received. With that letter, the employee will be able to claim a deduction on line 22900 of their income tax and benefit return in the year the amount was repaid.

Your share of the CPP contributions and EI premiums is not refundable.

Note

Your employer's share of the Canada Pension Plan (CPP) contributions and employment insurance (EI) premiums is not refundable. 

Example of how to report an overpayment when an employee didn't perform his duties

In September 2022, Peter became ill and could not work. You continue to pay his regular salary. In February 2023, he begins to receive payments from a wage‑loss replacement plan and repays you the amount of salary he received from September 2022 to February 2023. Do not make any adjustments to his 2022 T4 slip or to his current‑year pay records to reflect the amount of repayment. Instead, Peter can claim a deduction for the repayment on his 2023 income tax and benefit return by providing a copy of the letter you gave him confirming the date and the amount he repaid you and the year the amount was included in income.

Clerical, administrative, or system error

Election for repayment of net salary

If your business is actively operating and you did not issue a T4 slip with the salary overpayment amount removed, you may elect to have your employee repay the net amount of the salary overpayment.

You must make the election in prescribed manner within three years of the year the salary was overpaid. At the time of the election, the employee must have repaid, or arranged to repay, the net amount. Your employer’s share of Canada Pension Plan (CPP) contributions and employment insurance (EI) premiums is not refundable. For more information, go to Correcting reporting errors and salary overpayments.

To make the election, choose any following action:

Repayment of gross salary

If you do not elect to have your employee repay the net amount of the salary overpayment or do not meet the conditions noted above, the employee must repay you the gross amount of the salary overpayment.

Reporting salary overpayment

For more information about an employee who repays you:

■  before the original T4 slip is filed, go to Employee salary overpayments if your employee repays you

■  after the original T4 slip is filed, go to Employee salary overpayments

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