Correcting reporting errors and salary overpayments

On this page

• Canada Pension Plan (CPP) recovery and overpayment
• Employment insurance (EI) recovery and overpayment
• Salary overpayments

Canada Pension Plan (CPP) recovery and overpayment

If, during the year, you deducted more CPP contributions from the employee's earnings than you should have and you could not reimburse the overpayment:

• Do not adjust the amounts you report on the T4 slip. We will credit the excess CPP contributions to the employee when they file their income tax and benefit return.
• Fill out Form PD24, Application for a Refund of Overdeducted CPP Contributions or EI Premiums, to apply for a refund of your CPP overpayment. Send it to your national verification and collection centre with your paper-filed T4 information return or mail it separately if you have filed your return electronically.

Make your request no later than four years from the end of the year in which the CPP overpayment occurred.

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

Employment insurance (EI) recovery and overpayment

If, during the year, you deducted more EI premiums from the employee than you should have and you could not reimburse the overpayment:

• Do not adjust the amounts you report on the employee's T4 slip. We will credit the excess EI premiums to the employee when they file their income tax and benefit return.
• Fill out Form PD24, Application for a Refund of Overdeducted CPP Contributions or EI Premiums, to apply for a refund of your EI overpayment. Send it to us with your paper-filed T4 information return or mail it separately if you have filed your return electronically.

Make this request no later than three years after the end of the year in which the EI overpayment occurred.

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

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:

• an employee did not perform their duties
• there was a clerical, administrative, or system error

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:

• the employee is on a leave of absence (that is, the employee did not work)
• you paid salary or wages the employee would normally be entitled to received under the terms of their employment contract or collective agreement during the leave period

• the employee's circumstances have changed, and the employee is no longer entitled to the salary or wages you paid

If your employee does not repay you, include the salary overpayment and the deductions withheld on the overpayment on the employee's T4 slip. No other action is required.

Even if your employee repays you in the same year or a different year, you still have to include the salary overpayment and the deduction withheld on the employee's T4 slip. You cannot adjust the slip or the payroll records to reduce the total employment income or source deductions by the amount of the repayment.

After your employee has repaid the salary or wages, you can give them a letter confirming the tax year when the overpayment was included in their income, as well as the date, the reason, and the 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 benefits return in the year the amount was repaid.

Clerical, administrative, or system error

If you overpaid salary, wages, or remuneration to your employee because of a clerical, an administrative, or a system error, you may elect to have the employee repay the net amount of the salary overpayment to you. The net amount is the gross amount, less the following amounts you withheld on the salary overpayment:

• income tax
• Canada Pension Plan (CPP) contributions
• employment insurance (EI) premiums 
  

Having your employee repay the net amount of the salary overpayment

You may elect to have your employee repay the net amount of the salary overpayment, if all of the following apply:

• the overpayment was a result of a clerical, administrative, or system error
• no later than three years after the end of the year in which you overpaid the salary:
  • you made the election in the prescribed manner
  • the employee repaid or arranged to repay the net amount of the salary overpayment
• you did not issue a T4 slip with the employee’s correct earnings (that is, with the salary overpayment removed)
• your business is actively operating

The CRA may ask you to provide supporting documents to verify that you meet the conditions above.

Before the original T4 is issued

If the employee repays you or arranges to repay the salary overpayment before you issue the original T4 slip, do not include the salary overpayment or the income tax, CPP contributions, or EI premiums withheld on the overpayment on the employee’s T4 slip.

After the original T4 is issued

If you issued an original T4 slip for the year you made the salary overpayment:

• prepare an amended T4 slip for that year
• reduce the total employment income in box 14 by the amount of the salary overpayment
• reduce box 22 by any income tax deducted on the salary overpayment
• if the employee’s annual earnings were below the maximum annual pensionable earnings, reduce box 16 by the amount of CPP contributions deducted on the salary overpayment (see example 1)
• if the employee’s earnings were above the maximum annual pensionable earnings, but are below the maximum pensionable earnings after you correct the salary overpayment, reduce box 16 by the amount of CPP contributions that corresponds with the part of the salary overpayment that is below the maximum annual pensionable earnings (see example 2)
• if the employee’s annual earnings were below the maximum annual insurable earnings, reduce box 18 by the amount of EI premiums deducted on the salary overpayment (see example 1)
• if the employee’s earnings were above the maximum annual insurable earnings but are below the maximum insurable earnings after you correct the salary overpayment, reduce box 18 by the amount of EI premiums that corresponds with the portion of the salary overpayment that is below the maximum annual insurable earnings (see example 2)

In these situations, you will prepare an amended T4 slip for your employee. Use the CPP, EI, and income tax deductions from the employee’s original T4 slip, but reduce the employment income in box 14 by the amount of their salary repayment. You may also have to amend the EI insurable earnings in box 24 and CPP/QPP pensionable earnings in box 26 to agree with the reduced employment income that you will report in box 14.

After the CRA receives and processes the amended T4, it will credit the income tax, CPP contributions, and EI premiums remitted on the salary overpayment made in error (including your share of CPP contributions and EI premiums) to your payroll program account. You can then reduce, by the credited amount, the next payroll remittance you send to the CRA. The credited amount will be shown on your PD7A statement of account.

Having your employee repay the gross amount of the salary overpayment

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

In this situation, prepare an amended T4 slip for your employee. Use the CPP contributions, EI premiums, and income tax deductions from the employee’s original T4 slip but reduce the employment income in box 14 by the amount of the salary overpayment. You may also have to amend the EI insurable earnings in box 24 and CPP/QPP pensionable earnings in box 26 to agree with the reduced employment income you will report in box 14.

If you had to report the CPP contributions and EI premiums withheld on the salary overpayment on the employee’s T4 slip, you can ask for a refund of your share. Do this by filling out Form PD24, Application for a Refund of Overdeducted CPP Contributions or EI Premiums, and sending it to the CRA.

You can ask for a refund of CPP contributions up to four years after the end of the year in which you deducted them. For EI premiums, you can ask for a refund up to three years after the end of the year you deducted them in.