If you find that you consistently owe a large amount at tax time (or would prefer a slightly larger take-home pay each week instead of a big tax refund every year), changing how much tax your employer deducts from your pay sounds like the solution for you.
Payroll Basics
First let’s get down to the basics:
- Your employer is responsible for deducting the proper amount of tax from your paycheque.
- The deductions are based on a chart provided by the Canada Revenue Agency (CRA) and can be adjusted to fit your individual situation.
This means that how much tax you pay weekly should match the credits, deductions, or other income you have throughout the year. Form TD1, Personal Tax Credits Return contains all the info your payroll department needs to calculate your deductions.
Form TD1
When you started your job, you were most likely required to fill out a number of forms. One of these should have been a TD1. Some companies also require employees to redo a new TD1 every year in order to ensure the most accurate tax picture each year. This form, TD1, is available for both federal and provincial tax calculations.
Moreover, credits that you know you’ll be claiming at tax time can be checked off on the TD1. For example, if you have tuition credits, there’s an option to indicate how much you’ll be claiming. By completing this section, your employer will adjust your payroll deductions to a lower amount to offset the credit at tax time. If you prefer to have a larger refund each year, all that you need to do is leave the additional credits section blank.
Increasing Your Refund
If you aren’t entitled to any extra credits at tax time, don’t fret. You can still put yourself into a refund position by requesting extra tax be deducted from your pay. Even a small amount weekly can make a difference when you file your tax return. Use the “Additional tax to be deducted” section on the TD1 to request an increase in the tax deducted.
Lowering Your Tax Bill
If you have income from a rental unit or have a side business, the tax your employer deducts from your pay is especially important. By accurately completing the Form TD1, you can avoid a hefty bill at tax time by increasing the tax deducted weekly.
If you have more than one employer, be sure to include this info on your TD1. The payroll chart provided by CRA includes the basic deduction all taxpayers are entitled to. If each of your employers bases your tax deducted on the same formula, you’re likely going to come up short at tax time. Form TD1 has a spot to include income from other sources. Make sure that you fill this out as accurately as possible.
Life Changes
When there is a major change in your life that could have an impact on your taxes, let your employer know. For example:
- If you are entitled to additional credits, such as the spousal amount (if you are newly married) or the age amount (if you are over 65 years old), your employer can adjust the amount of taxes withheld from your paycheque.
- Similarly, if you are no longer claiming credits for tuition, etc. it’s a good idea to update your TD1.
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