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Income Tax Deductions

As an employer, you are responsible for making deductions for income tax from your employees' remuneration, no matter the age of your employee.  Among the types of remuneration from which you must withhold income tax at source are:
  • salary and wages, including retroactive payments and wages in lieu of termination notice;
  • payments under supplementary unemployment benefit plans (e.g., for maternity and paternity top-up);
  • fees and commissions;
  • special payments such as bonuses and retroactive pay;
  • retiring allowances (starting in 2011 for the 2010 taxation year); and
  • benefits and allowances for some items such as medical, educational, automobiles, and lodging. (The determination of which benefits and allowances are taxable can be difficult).
 
Refer to the CRA website section on Benefits and Allowances.)
 
 
Your employee will complete a personal tax credit return which you will use to help you determine the amount of income tax to deduct. In most cases, your employee will complete a TD1 form as discussed under the heading Hiring an Employee. Once completed, the TD1 will give the employee a claim amount. You will use this claim amount to determine the claim code and calculate the income tax deduction by using either a manual calculation method or the payroll deduction tables.  For more information on these two methods see the CRA website section on Methods of Calculating Deductions. CRA updates the payroll deduction tables as tax rates change.  Tables for the most common pay periods are available, ex: weekly, biweekly, semi-monthly, and monthly.
 
Supplementary payroll deduction tables are available on the CRA website for hourly, daily or 10, 13 or 22 pay periods a year. The payroll deduction tables have information to help you calculate the amount you must withhold for federal and provincial income tax.