Income Tax Deductions

Income tax must be deducted from all employees’ remuneration. There is no age limit, or other exception, to this requirement.

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 parental leave top-up);
• fees and commissions; special payments such as bonuses and retroactive pay;
• retiring allowances; and
• benefits and allowances for some items such as medical, educational, automobiles, and lodging.

To help you determine how much to deduct, the employee has to complete one of the personal tax credit returns, which is most often the TD1 form outlined earlier in this Module under the heading Hiring an Employee. Once completed, the TD1 will give the employee a claim amount. You use this amount to determine the claim code and calculate the income tax deduction by using either a manual calculation method or CRA’s payroll deduction tables.

The CRA’s payroll deduction tables are updated as tax rates change and there are tables for the most common pay periods being: weekly, biweekly, semi-monthly, and monthly. There are also supplementary payroll deduction tables for other payroll schedules, such as 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.

Want more information?
Determining which benefits and allowances are taxable can be tricky! Visit the CRA website section Payroll Deductions Online Calculator (PDOC), Payroll Tables, TD1s and more for guidance and to find up-to-date forms and tables.