Employee’s Guide to Income Tax Withholding

Your employer will withhold your income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums when they draft your paycheque and remit those payments to the Canada Revenue Agency (CRA).


The CRA uses a predetermined percentage applied to a certain range of earnings to calculate CPP and EI payments in a fairly simple manner. However, the formula used for income tax is more complex. Due to the amount of income tax your employer has withheld, you might occasionally find yourself in a situation where you either owe money or get a refund. It’s important to understand how everything functions.


Establishing Your Income Tax Payments


You typically complete a TD1, Personal Tax Credits Return, when you start a new job. Your employer would then receive the information on this form to determine how much income tax to withhold from your paycheque. You must complete a federal and a provincial or territorial TD1 form in order to pay federal and provincial income taxes. Your employer is required to withhold and send your income tax to the CRA.


Increasing  or Reducing Your Tax Withheld


Submit Form T1213 to your nearby tax center if you want to lower the amount of income tax your employer deducts from your paycheque. Include any supporting documentation along with notes on why you are eligible for a reduction. The CRA will send you a letter of authority if you meet the requirements. Give your employer a copy of this letter so that he can adjust your tax deductions.


To increase the amount of tax withheld, simply 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 – Statement of Remuneration slip. If you have other sources of income, income tax may also be withheld from these payments. A T-Slip will be provided to you in relation to that payment, and Box 22 will display the amount of source tax that was withheld  The following is a list of typical income sources along with the slip you will receive for each one:

Line 43700 of your tax return should contain the total of all of your income tax deductions. If you have overpaid your income tax, you will get a refund after entering all of your information and claiming any credits or deductions you are entitled to. You will have a balance due and owe the CRA money if you underpaid.

References & Resources