Increase or reduce income tax deducted at source

Depending on the situation, your employee may request an increase or a reduction to income tax deductions. Certain life events may also affect amounts to be withheld from payments to them.

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Employee wants to increase income tax deductions

Employees may want to increase income tax deductions to avoid having to pay a large amount of tax when they file their income tax and benefit return. For example, in the following situations, insufficient income tax may be deducted:

How to increase

To increase income tax deductions, the employee must fill out revised TD1 forms.

Learn more: Get the completed TD1 forms from the individual.

Employee wants to reduce income tax deductions

There are many other deductions from income, or non-refundable tax credits that are not part of the TD1 form that may be used to reduce income tax deducted at source.

These require the employee to apply for a letter of authority. A letter of authority from the CRA is required when employees want to reduce income tax deductions in the following situations:

How to reduce

To reduce income tax deductions, the employee must get a letter of authority. The employee must send to the CRA, either:

After receiving the letter of authority from the employee

You need to:

Employer or payer wants to reduce income tax deductions (blanket waiver for $15,000 or less)

You may request blanket waivers when both of the following occur:

Blanket waivers, when applicable, eliminate the need for each employee to request a letter of authority. If approved by the CRA, you will receive a blanket waiver letter providing the details of the approval. You will also receive a declaration of intent form to be provided for each applicable employee. This form is completed by each employee and given to the employer to confirm that the employee will be contributing to an RRSP.

After receiving the blanket waiver letter from the CRA

When receiving the blanket waiver letter and completed declaration of intent forms, the employer or payer must:

Non-resident employer with non-resident employees working in Canada who want a waiver or to reduce income tax deductions

If you are a non-resident employer and you are sending non-resident employees to work in Canada, your tax withholding obligations are the same as for Canadian resident employers.

If you want to be relieved of your obligation to withhold income tax for your qualifying non-resident employees, you must become a certified non-resident employer by filling out Form RC473, Application for Non-Resident Employer Certification.

Depending on the situation, you may still have to withhold Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums.

Learn more: Non-resident employer certification.

Non-resident employer without certification from the CRA

If you do not certify, your non-resident employees or self-employed workers who provide services may want to request a waiver to reduce income tax deductions.

Learn more: Waivers of withholding tax.

Life events that affect CPP, EI and income tax withholdings

You may need to determine whether you should deduct CPP contributions, EI premiums and income tax from payments you make to employees in specific situations. For example:

Learn more: Determine the tax treatment of payments other than regular employment income.



ITA: 153(1.1)
Payment would cause undue hardship
ITA: 153(1.2)
Election to increase tax deductions
ITA: 227(12)
Employee/ Employer cannot agree to waive tax

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