Filling out your taxes the correct way is essential for complying with Canadian tax regulations and avoiding penalties and fines. One of the forms you must complete as a business owner when hiring a new employee is the TD1, or Personal Tax Credits Return form, which is crucial for calculating how much tax you need to withhold from payments. Filling out this form will help you determine how much tax to remit from payouts you’ll need to send back to the Canada Revenue Agency or CRA.
A TD1 is signed by anyone who has been legally employed. The details of a TD1 form may be tedious for small business owners, so it’s best to work with accounting and bookkeeping services to make sure everything is done correctly. Here’s what you need to know about the TD1 form:
The TD1 form was designed to collect the correct tax amount from each employed individual. The CRA uses the TD1 forms to estimate correctly the amount of tax a person will have to pay at the end of a fiscal year and take it from each paycheck in increments. With this, the individual won’t be responsible for setting aside and forecasting how much tax they’ll owe to the CRA.
When employees fill out a TD1, they offer the government the information it needs on the tax credits they can apply on a person’s salary. Then, the CRA will calculate the percentage of your overall income that will go to tax. Depending on the applicable tax credits, the tax amount can be higher or lower. If an employee does not qualify for any applicable tax credits, then the amount of tax that will be pulled from their monthly salary will be based on their income’s marginal tax rate. If the CRA collects too much tax, they’ll refund any excess after evaluating a filed tax return.
Generally speaking, any employed individual must fill out a TD1 form. Anyone who is in the following circumstances must fill out the form:
However, it’s important to note that employees do not have to complete a new TD1 form every year unless their tax credit amount has changed. In this case, they must complete a new form and give it to their employer within seven days of the change.
All newly hired employees must complete two TD1 forms once starting a new job. They must fill out both the federal TD1 and the provincial TD1 if they’re claiming more than the basic personal amount. Employees in Quebec must use the federal TD1 Form and the provincial Form TP1015.3-V, Source Deductions Return.
To complete the form, employees must follow the instructions on both the federal and provincial forms. Then, they will add each of the amounts on the lines and total them. The sum will be written on the last line of page 1 on the TD1 form, which says “Total Claim Amount.”
Employees should add lines 1 to 12 together on the federal TD1 Form and enter the total amount into line 13. For the provincial or territorial TD1 form, the number of lines will differ according to whether you are in a province or territory.
The TD1 form was historically completed on paper. However, starting on January 20, 2020, employers are now expected to furnish all new employees with a link to a website where they can fill out the form when they are able. You can easily provide a fillable PDF version of the TD1 form to your employees for them to complete each year.
You actually don't submit the TD1 form anywhere. It's used to confirm a person is actually an employee and to view any additional withholdings the employee might want on their payroll. So make sure to save these in a cloud storage system of your choice so you can easily access them should the CRA come calling.
All business owners must pay special attention to the TD1 form since it helps them determine the amount of income tax they should deduct per pay period from their employees’ gross pay amounts. It may help to hire small business accounting services to ensure the firms are filled out correctly and that the amounts are accurate.
Blueprint Accounting, Inc. offers accounting, corporate tax, and bookkeeping services across Canada. Time is your most valuable resource, so let us handle the numbers so you can focus on what you do best: growing your business. Contact us today for a free consultation!
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