CRA & Revenu Québec

Employee’s Guide to Income Tax Withholding

When your employer drafts your paycheque, they automatically withhold your Employment Insurance (EI) premiums, Canada Pension Plan (CPP) contributions, and income tax, and they remits those payments to the Canada Revenue Agency (CRA).

The CRA calculates CPP and EI payments in a fairly straightforward manner, applying a set percentage to a certain range of earnings. The formula applied to income tax, however, is more complex. In some cases, you may end up either owing money or receiving a refund due to the amount of income tax your employer has withheld. It’s important to understand how it all works.

Establishing Your Income Tax Payments

When you start a job, you usually fill out a TD1, Personal Tax Credits Return. The information on this form tells your employer how much income tax to withhold from your paycheque. As you pay both federal and provincial income tax, you’ll fill out both a federal and a provincial or territorial TD1 form. Your employer is obligated to withhold your income tax and send it to the CRA.

Reducing or Increasing Your Tax Withheld

If you want to reduce the amount of income tax your employer withholds from your paycheque, submit Form T1213 to your nearest tax centre. Include notes about why you qualify for a reduction and any supporting documents. If you qualify, the CRA will send you a letter of authority. Give this letter to your employer so that he can reduce your tax deductions accordingly.

To increase the amount of tax withheld, fill out a new Form TD1, and give it to your employer. You do not have to send a copy to the CRA.

Filing Your Taxes

The amount of income tax that was deducted from your paycheque appears in box 22 of your T4 slip. If you receive Old Age Security, pension benefits, Employment Insurance benefits, or certain other payments, income tax may have been deducted from these payments, as well as the payments in box 22 of the corresponding T4 slip.

Add all of your income tax deductions together and report that amount on line 437 of your income tax return. If you have overpaid, you receive a refund, and if you have underpaid, you owe the CRA money.