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.

On this page

• Employee wants to increase income tax deductions
• Employee wants to reduce income tax deductions
• Employer or payer wants to reduce income tax deductions (blanket waiver for $15,000 or less)
• Non-resident employer with non-resident employees working in Canada who want a waiver or to reduce income tax deductions
• Life events that affect CPP, EI and income tax withholdings
• References

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:

• Individual works part-time for different employers during the year
• Individual no longer pays for child care
• Employee's province of employment is not the same as their province of residence and they will not have enough tax 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:

• Employee makes charitable donations to registered charities or other qualified donees
• Employee has employment-related expenses
• Employee pays for child care
• Employee makes deductible RRSP contributions himself during the year
• Employee's province of employment is not the same as their province of residence and they will have too much tax deducted

After receiving the letter of authority from the employee

You need to:

• Keep the letters of authority with your employee's record. Do not send the CRA a copy
• Reduce the income tax deducted at source by the amount specified in the letter of authority

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:

• You will be making a lump-sum payment to your employees
• You anticipate that your employees will want to contribute all or a portion of the lump-sum payment into an RRSP

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:

• Retain a copy of the blanket waiver letter and completed declaration of intent forms for their payroll records
• Reduce the lump sum payment by the amount on the declaration of intent in order to calculate the taxable amount of the lump sum payment

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:

• Employee is turning 18
• Employee is at least 65 years, but under 70, and provided Form CPT30, Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election
• Employee is injured during work related duties
• Employee is disabled under the CPP
• Employee dies
• Employee is leaving or the contract of employment is ending

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

References

Legislation