How to treat workers' compensation board payments under different circumstances

John is injured at work on July 11, 2021. He continues to be paid his regular wages until February 3, 2023, when the workers' compensation board reimburses the employer the amount of his claim.

Results

• All wages paid in 2021, 2022, and 2023, along with Canada Pension Plan (CPP) contributions, employment insurance (EI) premiums, and income tax withheld have to be reported on a T4 slip for each of the years. John will report the T4 amounts on his income tax and benefit return for each year.
• In 2023, the year the claim was paid, the employer cannot adjust box 14, "Employment income," on the T4 slip or reduce the CPP contributions, EI premiums, and income tax withheld in 2021, 2022, or 2023.
• When filling out the T4 slip for 2022, the employer will enter code 77 in the "Other information" area at the bottom of the slip, and report the total amount reimbursed to the employer by the workers' compensation board for the three years.
• When John files his 2023 income tax and benefit return, he will claim the amount reported under code 77 as a deduction for other employment expenses (repayment of salary or wages).
• If there is any unused amount and John does not have other types of income in 2023, this amount may become a non-capital loss.

Mary is injured on April 2, 2022, and is away from work until June 5, 2023. Her employment contract states that her employer will pay an amount equal to her regular net pay. The amount Mary receives as an advance based on her regular net pay is more than the anticipated benefits that will be awarded by the worker's compensation board.

Results

• The amount of the advance that is equal to the benefits awarded by the workers' compensation board is not employment income. As a result, Mary's employer will not have to deduct Canada Pension Plan (CPP) contributions, employment insurance (EI) premiums, or income tax from this amount.
• However, the amount Mary's employer pays in addition to the advance, while waiting for a decision, is employment income in the year it is paid the employer has to deduct CPP contributions, EI premiums, and income tax.
• In 2022, when the claim is paid, Mary's employer has to offset the amount reimbursed by the workers' compensation board against the advances made to her. The employer does this in the following way:
  • If the amounts are equal, no amount will be recorded in the "Other information" area of the T4 slip. 
  • If the advances are more than the amount reimbursed, the difference is employment income. Mary's employer has to report this income on a T4 slip with CPP contributions, EI premiums, and income tax withheld. No entry is needed in the "Other information" area.
  • If, after the claim is paid by the workers' compensation board, Mary's employer continues to pay an amount in addition to the workers' compensation benefit, this amount is considered to be a top-up amount and the employer has to deduct CPP contributions and income tax but no EI premiums. It will be reported on a T4 slip in the year paid.
  • If the claim is denied, the part of the advance that Mary does not repay becomes employment income in the year the claim is denied. Mary's employer has to report the amount of the advance on a T4 slip with CPP contributions, EI premiums, and income tax withheld. If Mary repays the advance, her employer does not have to report the amount on a T4 slip. The amount of the advance is not reported in the "Other information" area, under code 77 of the T4 slip, because it was never included in income.