Correct deduction errors
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Prior year corrections
You may need to correct the following deduction error or salary overpayment in a previous tax year:
Overpayment – CPP or EI overpayment
You deducted more CPP contributions or EI premiums from the employee (overpayment)
If, during the year, you deducted more CPP or EI from the employee's earnings than you should have and you could not reimburse the overpayment:
Show the total CPP contributions or EI premiums deducted, including the overpayment, and the correct pensionable earnings on the employee's T4 slip.
The CRA will credit the excess CPP or EI to the employee when they file their income tax and benefit return
If you reported the employee's overpayment on the T4 slip, you can ask for a refund of the employer's share of the overpayment by filling out Form PD24, Application for a Refund of Overdeducted CPP Contributions or EI Premiums.
You can send the application with your information return or send it later within the following time limits:
CPP contributions
No later than 4 years from the end of the year in which the overpayment occurred
EI premiums
No later than 3 years from the end of the year in which the overpayment occurred
Recovering – CPP or EI underdeduction
You under-deducted CPP contributions or EI premiums from the employee (recovering)
If you receive a notice of assessment or if you discover that you have under deducted CPP or EI, you are responsible for remitting the balance due (both the employer's and employee's shares).
How to recover
You can recover the employee's contributions from later payments to the employee. The recovered contribution can be equal to, but not more than, the amount you should have deducted from each payment.
You cannot adjust the employee's income tax deduction to cover the CPP or EI shortfall.
What is the time limit to recover
You cannot recover a contribution amount that has been outstanding for more than 12 months.
How to report
Do not report the recovered contributions or premiums on the current year's T4 slip. You may have to amend your employee's T4 slip.
Example – CPP and EI calculations
| Situation | CPP contributions | EI premiums |
|---|---|---|
| Tax year 2022 – You did not deduct or remit CPP contributions and EI premiums that should have been deducted |
Sept = $23.40 Oct = $23.40 Nov = $24.10 Dec = $24.70 Total = $95.60 |
Sept = $74.00 Oct = $74.00 Nov = $78.00 Dec = $75.00 Total = $301.00 |
| After conducting a PIER review, the CRA will send you a notice of assessment for the under deducted CPP contributions and EI premiums | CPP – Employee's share = $95.60 CPP – Employer's share = $95.60 Total = $191.20 |
EI – Employee's share = $301.00 EI – Employer's share = $421.40 Total = $722.40 |
Tax year 2023 – You can recover the employee's required contributions for 2022 with the contributions to be deducted in those pay periods:
|
April = $23.40 + $24.70 May = $23.40 + $24.70 June = $24.10 + $25.10 July = $24.70 + $25.10 Total recovered = $95.60 |
April = $74.00 + $74.00 May = $74.00 + $78.00 June = $78.00 + $80.00 July = $75.00 + $80.00 Total recovered = $301.00 |
Overpayment – Salary and employee does not repay you
You made an overpayment of salary, wages, or other remuneration to your employee and the employee does not repay you
How to correct the reporting of the overpayment
If you already issued an original T4 slip for the year the salary overpayment was made, and you did not include the overpayment in the original T4, you must prepare an amended T4 slip (in the year the employee was overpaid) and increase the following by the amount of the overpayment:
- Total employment income (box 14)
- Income tax deducted (box 22)
- CPP contributions (box 16)
- EI premiums (box 18)
- Insurable and pensionable earnings (box 24 and box 26)
If the corrected earnings are above the maximum insurable/pensionable earnings, you must still make sure that the maximum insurable/pensionable earnings as well as the corresponding EI/CPP deductions are reported on the employee's T4 slip.
If you had already included the amount of the overpayment on the T4 slip, the amount of the overpayment and the deductions must remain on the employee's T4 slip.
What is the time limit for amending the T4 slip
Generally, there is no time limit to amend T4 slips. When you file T4 slips, the amounts reported for CPP, EI and income tax are deemed to have been deducted.
How to request a refund for CPP and EI
You cannot request a refund of your share of the CPP contributions and EI premiums in this situation because the employee did not repay you for the salary overpayment.
Overpayment – Salary and employee repays you
The employee did not perform their duties or the amount paid is more than 3 years after the end of the year in which the salary was overpaid
Your employee should repay the gross amount of a salary overpayment when all of the following conditions are met:
- Your employee did not work or ceased to work, including a period when your employee is on a leave of absence
- You paid salary or wages the employee would normally be entitled to receive under the terms of their employment contract or collective agreement during the leave period
- Your employee's circumstances have changed, and your employee is no longer entitled to the salary or wages you paid
Examples – When an employee did not perform their duties
The following are examples of when an employee was paid but they did not work or fulfill the terms of their contract. The employee received payments they were not entitled to during a period:
- while they were on vacation leave or sick leave (for example, vacation or leave pay beyond their entitlement)
- while they were on maternity or paternity leave
- that covers a period after they were terminated or left the job
- because they did not fulfill the terms of a signing bonus they received
- while waiting for a Workers' Compensation Board (WCB) claim that was not approved
How to correct the reporting of the overpayment
If the employee repays the overpayment in the same year or a different year:
- Include the overpayment and corresponding deductions on the employee's T4 slip
- If you allowed your employee to repay an overpayment in instalments, you may have to calculate a taxable interest benefit (see Loans and employee debt)
- Do not adjust the slip or the payroll records to reduce the total employment income or source deductions by the amount of the repayment
- Provide a letter to the employee confirming the following information:
- reason for the overpayment
- when the overpayment was included in the employee's income
- date and amount of the repayment
With this 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.
What is the time limit for amending the T4 slip
Generally, there is no time limit to amend T4 slips. When you file T4 slips, the amounts reported for CPP, EI and income tax are deemed to have been deducted.
How to request a refund for CPP and EI
You cannot request a refund of your share of the CPP contributions and EI premiums in this situation because the overpayment is the result of an employee not performing their duties rather than a clerical, administrative or system error.
You made a clerical, administrative, or system error and the amount paid is less than 3 years after the end of the year in which the salary was overpaid – Repayment of net salary
Repayment of net salary
You may elect to have the employee repay the net amount of the salary overpayment (gross pay, less source deductions withheld) if all of the following conditions are met:
- The overpayment was a result of a clerical, administrative, or system error
- The business is actively operating
- Prior to making this election, you did not issue a slip with the employee's correct earnings (with the salary overpayment removed)
- It is no later than 3 years after the end of the year in which the salary was overpaid and:
- The employee repaid or arranged to repay the net amount of the salary overpayment
- The election is made according to the following established procedure, which is done either by:
- Excluding the salary overpayment from an original T4 slip
- Amending the T4 slip to remove the overpayment and reducing the corresponding deductions that were withheld and remitted (when applicable)
The CRA may ask you to provide supporting documents to verify that you meet all the conditions.
Learn more if you do no elect or you do not meet the conditions: Repayment of gross salary
Which form to use
No form is required to make this election. The election is made by either:
- Excluding the salary overpayment from an original slip
- Amending a slip to remove the overpayment and reducing the corresponding income tax you deducted, as well as the CPP contributions and EI premiums you withheld and remitted (when applicable)
How to correct the reporting of the overpayment
If you already issued an original T4 slip for the year the salary overpayment was made, you must prepare an amended T4 slip and reduce the following by the amount of the overpayment:
- Total employment income (box 14)
- Income tax deducted (box 22)
- CPP contributions (box 16)
- EI premiums (box 18)
- Insurable and pensionable earnings (box 24 and box 26)
If the corrected earnings are above the maximum insurable/pensionable earnings, you must still make sure that the maximum insurable/pensionable earnings as well as the corresponding EI/CPP deductions are reported on the employee's slip.
Example 1 – Annual pensionable and insurable earnings are below the maximum
In 2022, your employee earned $36,000. In 2023, after you filed their original 2022 T4 slip, you discovered you overpaid them by $1,000 because of a system error. From the overpayment, you had deducted income tax of $100, CPP contributions of $57, and EI premiums of $15.80.
In 2023, your employee agreed to repay you the net amount of the salary overpayment. You should amend their 2022 T4 slip to reduce each of the following amounts by $1,000:
- Total employment income in box 14
- EI insurable earnings in box 24
- CPP pensionable earnings in box 26
You should also reduce:
- The amount of income taxes deducted in box 22 by $100
- The CPP contributions in box 16 by $57
- The EI premiums in box 18 by $15.80
Once the CRA receives and processes the amended slip, you will be able to reduce your next payroll remittance to the CRA by the following amounts:
- $100 of income tax deducted on the salary overpayment
- $57 of CPP contributions deducted on the salary overpayment
- $15.80 of EI premiums deducted on the salary overpayment
- Your $57 share of CPP contributions
- Your $22.12 share of EI premiums
Example 2 – Annual pensionable and insurable earnings are above the maximum
In 2022, your employee earned $70,000. In 2023, after you issued the original 2022 T4 slip, you discovered you overpaid them by $20,000, because of a system error. In 2023, your employee agreed to repay the net amount of the salary overpayment.
You should amend their 2022 T4 slip to reduce:
- Total employment income in box 14 by $20,000
- CPP contributions in box 16 by $849.30 (the $14,900 difference between the maximum pensionable earnings and the corrected earnings multiplied by the 5.70% employee CPP contribution rate)
- EI premiums in box 18 by $162.74 (the $10,300 difference between the maximum insurable earnings and the corrected earnings multiplied by the 1.58% employee EI premium rate)
- Income taxes deducted in box 22 by $2,200 (the amount deducted on the salary overpayment of $20,000)
- EI insurable earnings in box 24 by $10,300 (maximum insurable earnings of $60,300 minus corrected earnings of $50,000)
- CPP pensionable earnings in box 26 by $14,900 (maximum pensionable earnings of $64,900 minus corrected earnings of $50,000)
Once the CRA receives and processes the amended slip, you will be able to reduce your next payroll remittance to the CRA by the following amounts:
- $2,200 of income tax deducted on the salary overpayment
- $849.30 of CPP contributions deducted on the salary overpayment
- $162.74 of EI premiums deducted on the salary overpayment
- Your $849.30 share of CPP contributions
- Your $277.84 share of EI premiums
What is the time limit for amending the T4 slip
Generally, there is no time limit to amend T4 slips. When you file T4 slips, the amounts reported for CPP, EI and income tax are deemed to have been deducted.
What happens once you amend the T4 slip
After the CRA receives and processes the amended T4 slip, 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.
What happens if the earnings are above the maximum
If the employee's corrected earnings are above the maximum annual earnings, you have to include on the slip the CPP contributions or the EI premiums withheld on the salary overpayment.
You made a clerical, administrative, or system error and the amount paid is less than 3 years after the end of the year in which the salary was overpaid – Repayment of gross salary
Repayment of gross salary
Your employee must repay the gross amount of a salary overpayment if either of the following apply:
- You did not elect to have the employee repay the net amount of the salary overpayment
- The conditions to repay the net amount of the salary overpayment are not met
Example – Employee repaying the gross amount of the salary overpayment
In 2022, your employee earned $36,000. In 2023, after you filed the original T4 slip, you discover you overpaid them by $500 because of a calculation error. You do not elect to have them repay the net amount, and they agree to repay you the gross amount in 2023.
You should amend their 2022 T4 slip to reduce the total employment income in box 14, as well as the CPP pensionable and EI insurable earnings in boxes 26 and 24 by $500. Do not adjust the amount of CPP contributions, EI premiums, or income tax deducted in boxes 16, 18, and 22.
You can then ask for a refund of your share of CPP contributions and EI premiums by filling out Form PD24 and sending it to the CRA. The employee will not be able to claim a deduction from income in the 2023 tax year for the repayment, but they can ask the CRA to adjust their 2022 income tax and benefit return.
How to correct the reporting of the overpayment
If you already issued an original T4 slip for the year the salary overpayment was made, you must prepare an amended T4 slip and reduce the following by the amount of the overpayment:
- Total employment income (box 14)
- Insurable and pensionable earnings (box 24 and box 26)
If the corrected earnings are above the maximum insurable/pensionable earnings, you must still make sure that the maximum insurable/pensionable earnings as well as the corresponding EI/CPP deductions are reported on the employee's slip.
How to request a refund for the employer's share of CPP and EI
You can request a refund by sending a completed Form PD24, Application for a Refund of Overdeducted CPP Contributions or EI Premiums.
You can send the application with your information return or send it later within the following time limits:
CPP contributions
No later than 4 years from the end of the year in which the overpayment occurred
EI premiums
No later than 3 years from the end of the year in which the overpayment occurred
Current year corrections
You may need to correct a deduction error or a salary overpayment in the current tax year.
Learn more on how to correct a deduction error or a salary overpayment and you have not already filed the information return: Make corrections before filing.
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