Your employer is obligated to collect taxes from your pay cheque and remit them on your behalf to the Canada Revenue Agency (CRA).
Employers determine how much they are required to withhold from you based on your completed federal TD1, and province specific TD1 form. However, sometimes the TD1 form doesn’t give your employer a full picture of your deductions and non-refundable tax credits, and they are still taking too much tax from you. In this case, you can use a T1213 form to request that they withhold less tax from your pay cheque. You can make a request to the CRA to reduce the tax withheld on your whole salary or on a specific lump sum.
What is a T1213 Form Request to Reduce Tax Deductions at Source?
This form asks you to detail specific deductions and non-refundable tax credits that are not included on the basic TD1 form, including credits for medical expenses, clergy allowances, and child care. You may need to attach supporting documentation to be granted the tax deduction at source. It is important to note that this form isn’t used to help you pay less money, but just to alert your employer of your unusual tax situation.
You cannot opt out of taxes in general. If you owe a tax, you must pay it. If you ask to reduce taxes on a tax deduction or credit that you do not qualify for with form T1213 the Canada Revenue Agency will decline your application. In order to really reduce your taxes, you should make sure that you’re applying for all the tax credits that you are eligible for.
When Should You Use the T1213 Form Request to Reduce Tax Deductions at Source?
In general, you should use the T1213 form when you often qualify for a specific deduction or non-refundable tax credit on your income taxes that nets you a refund; by completing this form, those deductions and credits can be considered at the time of your pay, instead of waiting for the tax season.
Some people who might choose to make this application include:
- Members of the clergy
- Those with high childcare costs or family support payments
- Those who make high contributions to their RRSP
- Those who have high medical expenses that entitles them to a tax credit
- Those who get a foreign tax credit
Even if your application is accepted by the CRA, you will need to re-apply with form T1213 every year, assuming that your circumstances remain the same. The CRA will give you a letter to give to your employer that details how they should calculate the amount that they withhold from your taxes for the year.
It’s also worthwhile to know that you should send this form to the CRA by November at the latest. They need time to process the request and send you a letter before the new tax year begins.
Why Would an Employee Apply for a Reduction in Tax Deductions at Source?
If you’re an employer, you may be confused by a T1213 application. In general, employees apply for tax deductions at source when their tax situation is unusual that the normal TD1 forms you use to calculate their tax situation doesn’t give you all the amounts you need for a more accurate withholding amount.
Don’t worry, you do not have to assess an employee’s T1213 application. Instead, they should take the form and send it to the Canada Revenue Agency. Specifically, the form lists which location to send it to, depending on the applicant’s province or territory. The CRA will assess their application for you, and then send them a letter to give to you. The letter will detail any changes to their tax withholding amounts in the future.
Your employee needs to reapply for this every year, so you should get new instructions from the CRA every year. If you do not, return to processing your employee’s tax based on their TD1 forms as you do for other employees.