Increasing income tax source deductions; Decreasing income tax source deductions; Replacing T4s and RL-1s
Increasing income tax source deductions
Question: An employee has requested that I increase the amount
of income tax deducted from his pay. Do I need permission from
the Canada Revenue Agency (CRA) to do this?
ANSWER: If an employee wants payroll to increase his income tax deductions, the employee must complete a new federal TD1 form, Personal Tax Credits Return.
On the form, there is a box where the employee can enter the amount of extra tax to be deducted from each pay.
This amount will remain in effect until the employee files a new TD1 form.
For part-time employees, the CRA suggests it may be in their best interest to increase their income tax deductions, especially if they have been employed part-time by different employers during the year.
By paying more with each pay, they may not have to pay a large amount of tax when they file their income tax return.
For Quebec, employees who want additional provincial income tax deducted must complete a TP-1017-V form, Request to Have Additional Income Tax Withheld at Source, and give it to their employer.
Decreasing income tax source deductions
Question: An employee has requested that the payroll department reduce her income tax deductions. Do I need permission from the CRA to do this?
ANSWER: Employees who are eligible for deductions and other non-refundable tax credits not listed on the TD1 when they file their income tax return (such as RRSP contributions, child care expenses, employment expenses) may want to reduce the amount of income tax deducted at source each pay.
They cannot just ask their employer to decrease the deductions. They must first make the request to the CRA by filing form T1213, Request to Reduce Tax Deductions at Source for Year(s) ______ and providing proper supporting documents.
The CRA will not approve the request if the employee has not filed income tax returns as required or if the employee owes amounts to the CRA.
If the CRA approves the request, it will send the employee a letter of authority. Before payroll can decrease the tax deductions, the employee must give you the letter. In general, employees have to make the request every year; however, if they have deductible support payments that are the same or greater for more than a year, the employee can request the income tax reduction for two years.
If the employer deducts RRSP contributions from the employee’s pay, the employee does not have to obtain a letter of authority before the employer can reduce income tax deductions.
For Quebec employees, Revenu Québec must approve a reduction in income tax source deductions before an employer can implement it.
Employees can request a reduction in provincial income tax deductions from Revenu Québec by completing and submitting form TP-1016, Application for a Reduction in Source Deductions of Income Tax for an Individual or a Self-Employed Person, as well as any supporting documents.
There is also an online option available for employees. See www.revenuquebec.ca/en/sepf/services/scr_demande_reduction_retenue/default.aspx for more information.
Similar to the CRA, Revenu Québec requires that individuals be eligible for deductions not included on the Source Deductions Return (form TP-1015.3-V) and that they have previously filed all of their income tax returns and do not owe outstanding amounts.
In addition, Revenu Québec requires that the employee’s remuneration subject to income tax source deductions must be reduced by a minimum of $2,000 or the amount withheld must be reduced by at least $400.
Revenu Québec will notify applicants by letter whether it has approved the request.
For approvals, individuals must provide the letter to their employer before payroll can implement the reduction.
Generally, authorizations to reduce tax deductions only apply for the year in which they are requested.
Revenu Québec states that payroll must evenly distribute the tax reduction over the pay periods remaining in the year.
Replacing T4s and RL-1s
Question: We mailed our employees their T4 slips at the end of January. One of our employees says he thinks he accidentally threw it out. Do we have to prepare a new slip for him?
ANSWER: No, do not prepare a new T4. Instead, give the employee replacement slips and clearly mark "duplicate" on them. Do not send the duplicate slips to the CRA.Keep a copy for your records. If an employee misplaces or ruins her copy of an RL slip already submitted, give the employee a photocopy of the form in your records. Ensure you put "Duplicate" on the top and that the identification number in the upper right-hand corner of the form can be clearly read.