Why Is A Review Important
We verify these calculations so that your employees or their beneficiaries will receive the proper:
- CPP benefits if the employees retire, become disabled, or die
- EI benefits if the employees become unemployed, take maternity, parental, adoption, or compassionate care leave, leave to care for or support their critically ill or injured child, or are injured, ill, or on leave without pay
Income And Unemployment: The Other Employment Taxes
Now that you know FICA and self-employment taxes are payroll taxes, lets take a brief look at income and unemployment taxes. Withhold income taxes from employee wages unless your employee is exempt from income taxes. The types of income taxes include:
Most states have state income taxes. If youre in a state with state income tax withholding, collect state W-4 forms from your employees to determine the amount per paycheck. Remember to check with your local government to determine if you need to withhold local taxes from your employees.
Unemployment taxes are the other type of employment taxes you must pay. Unlike income taxes, employers typically pay unemployment taxes. The two types of unemployment taxes are:
- Federal unemployment tax
Like payroll taxes, calculate your unemployment tax contributions based on your employees gross wages.
Keep in mind that income and unemployment taxes are not technically payroll taxes.
Calculating The Cpp Deductions
To determine the amount of CPP contributions to deduct, use one of the following tools:
- the Payroll Deductions Online Calculator
- the Payroll Deductions Tables
- the Payroll Deductions Supplementary Tables
- the Payroll Deductions Formulas
Note
The Payroll Deduction Tables break the CPP basic yearly exemption down by pay periods.
To find out which method is best for you, see Payroll Deductions Tables.
You can also use a manual method to calculate your employees CPP deductions. For a single pay period, use the calculation in Appendix 2. For multiple pay periods, or to verify the CPP contributions deducted at the end of the year before filling out the T4 Slip, use the calculation in Appendix 3.
Notes
A pay period means the period for which you pay earnings or other remuneration to an employee.
Once you have established your type of pay period, the pay-period exemption must remain the same, even when an unpaid leave of absence occurs, or when earnings are paid for part of a pay period.
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Small Business Tax Obligations: Payroll Taxes
Lea Uradu, J.D. is graduate of the University of Maryland School of Law, a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, Tax Writer, and Founder of L.A.W. Tax Resolution Services. Lea has worked with hundreds of federal individual and expat tax clients.
One of the issues small-business owners have to contend with is staying current with the many obligations for local, state, and federal taxes. While most business owners hire an accountant or a tax professional to deal with tax-related issues, understanding the tax system is important to those who bear the ultimate responsibility for fulfilling all tax obligations. This article will focus on the business owner’s obligations with regard to payroll taxes.
Chapter 4 Pensionable And Insurable Earnings Review
Each year, we check the calculations you made on the T4 slips that you filed with your T4 Summary. We do this to make sure the pensionable and insurable earnings you reported correspond to the deductions you withheld and remitted.
We check the calculations by matching the pensionable and insurable earnings you reported with the required Canada Pension Plan contributions or employment insurance premiums shown in the Guide T4032, Payroll Deductions Tables. We then compare these required amounts with the CPP contributions and EI premiums reported on the T4 slips.
If there is a deficiency between the CPP contributions or EI premiums required and those you reported, we print the figures on a PIER listing. If you file electronically and report an employee number on your T4 slips, we will display the employee number on the PIER listing.
We will send you the listing showing the name of the affected employees and the figures we used in the calculations. We will also include a PIER summary that shows any balance due.
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How To Use The Percentage For Promotions And Raises
Your payroll percentage can provide a useful starting point for determining how much to pay employees. As the business grows, you may want to budget for future promotions or raises that maintain the payroll to revenue percentage within a targeted range. If your payroll percentage is below the average for your industry, it could mean that you need to raise wages to avoid losing staff to competitorsor it could simply indicate that your business is much more efficient because it makes better use of automation. Payroll percentage is only one of the factors to consider when determining whether to raise wages.
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Vacation Pay And Public Holidays
When you pay vacation pay, how you calculate deductions will depend on whether your employee takes holidays. When part of the pay period includes a public holiday calculate deductions as you normally would.
The employee takes holidays
The following procedures apply when you pay vacation pay and your employee takes holidays.
Note
If your employee takes holidays but does not receive vacation pay at that time, see the next section, The employee does not take holidays.
CPP contributions
Deduct CPP contributions from vacation pay in the same way as you would from regular pay. Do not change the pay period table you normally use. Do not deduct more than the maximum employee contribution for the year.
EI premiums
Deduct EI premiums from vacation pay in the same way you would from regular pay. Do not deduct more than the maximum employee premium for the year.
Income tax
When you calculate the amount of income tax to deduct, use the tax table that applies to the period of vacation. For example, for one week of paid vacation, use the weekly tax deduction table. If your payroll is biweekly and the employee is paid one week of vacation pay and one week of regular pay, use the biweekly tables. If the employee is paid one week of vacation pay and the second week is unpaid, also use the biweekly tables.
The employee does not take holidays
The following procedures apply when you pay vacation pay and your employee does not take holidays.
CPP contributions
EI premiums
Income tax
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Deducting Tax From Income Not Subject To Cpp Contributions Or Ei Premiums
We have built the tax credits for CPP contributions and EI premiums into the federal and provincial tax deductions tables in this guide. However, certain types of income, such as pension income, are not subject to CPP contributions and EI premiums. As a result, you will have to adjust the amount of federal and provincial income tax you are deducting.
To determine the amount of tax to deduct from income not subject to CPP contributions or EI premiums, use the Payroll Deductions Online Calculator, available at canada.ca/pdoc. On the “Salary calculation” and/or on the “Commission calculation” screen, go to Step 3 and select the “CPP exempt” and/or “EI exempt” option before clicking on the “Calculate” button.
You Can Outsource Payroll Tax
Payroll tax is complex. The calculations are nitpicky and penalties are steep. Even paying payroll taxes just a day late comes with a 2% penalty on the amount due, with that penalty rising as high as 15% for past due payroll taxes.
We highly recommend outsourcing your payroll to a company like Gusto. Theyâll take the headache out of everything from paying your employees the right amount at the right time, to handling pesky withholding calculations and payroll taxes.
When it comes time to record payroll costs on your books, Bench can take care of that for you. Learn more about how we are saving small business owners hours of admin every month.
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Explanation Of Claim Codes
Claim code 0
This code represents no claim amount. If the federal claim code is 0 because the employee is a non-resident, the provincial claim code must also be 0. This code may also be used if the employee indicated they have more than one employer or payer at the same time and have entered 0 on the front page of Form TD1 for 2021.
Claim codes 1 to 10
The claim code amounts do not appear on either the federal or the provincial TD1 form.
You match the “Total claim amount” reported on your employee’s or pensioner’s TD1 forms with the appropriate claim codes. Then, you look up the tax for the employee’s pay under the claim code in the federal and provincial tax tables for the pay period.
Indexing of claim codes amounts
The credits that apply to each federal and provincial claim code have been automatically changed in the tax tables by the indexing factor for the current year. If your employee did not complete the federal and provincial TD1 forms for 2021, you continue to deduct income tax using the same claim code that you used last year.
Chart 3 2021 federal claim codes
Note
Due to the December 9, 2019 announcement, legislative changes to the Federal Basic Personal Amount, the Claim Code Chart cannot be produced with ranges, as was previously done. Accordingly, the Federal Claim Code Chart will not be produced with this edition.
Chart 4 2021 Ontario claim codes
| Total claim amount |
|---|
| E |
How Are Corporate Taxes Calculated
Corporate income tax is a tax levied by the government on the profits of a company. The money raised from corporate taxes is used as a source of income for the country. A company’s operating income is calculated by subtracting its costs, including cost of goods sold and depreciation, from its income.
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Employing A Caregiver Baby
If you hire a caregiver, baby-sitter, or domestic worker, you may be considered to be the employer of that person. As an employer, you have responsibilities in the employment relationship between you and the person.
When are you considered to be an employer?
You are considered to be an employer when all of the following apply to you:
- hire a person
- establish regular working hours
- assign and supervise the tasks performed
If you or a person working for you is not sure of the workers employment status, either one of you can request a ruling to determine the status. If you are a business owner, you can use the Request a CPP/EI ruling service in My Business Account. For more information, go to My Business Account.
A worker can ask for a ruling by using the My Account service, at My Account for Individuals and selecting Submit documents and then You may be able to submit documents without a case or reference number.
For more information, see Guide RC4110, Employee or Self-Employed?
To find out what your responsibilities are as an employer, see What are your responsibilities?
California State Payroll Taxes
Now that were done with federal income taxes, lets tackle California state taxes. The State of California wins for the highest top marginal income tax in the country. Its a progressive income tax, meaning the more money your employees make, the higher the income tax. The following graph gives insight into the varied tax rates in place for single filers.
More information can be found on the California Franchise Tax Board website.
The Golden State has four state payroll taxes administered by the Employment Development Department : 1) Unemployment Insurance, 2) Employment Training Tax, 3) State Disability Tax, and 4) Personal Income Tax. Youre responsible for paying half of those taxes, while the other half should be withheld from each employees paycheck. Details and rates can be found on the EDD website.
- What You Pay For:
- Unemployment Insurance is issued by the U.S. Department of Labor. UI provides temporary payments to those who are unemployed against their own capabilities. Employers pay up to 6.2% on the first $7,000 in wages paid to each employee in a calendar year. New employers pay 3.4% for the first two to three years. Each December, you will be notified of your new rate.
- Employment Training Tax, also known as funding for training. You are responsible for paying 0.1% of the first $7,000 of wages per employee a year. This ones relatively cheap, maxing out at $7 per employee a year.
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How To Appeal A Payroll Assessment Or A Cpp/ei Ruling
If you receive a payroll assessment because your payment was not applied to your account correctly, before you file an appeal, we recommend that you call Business Enquiries at 18009595525 or write to your National Verification and Collection Centre to discuss it. Many disputes are resolved this way and can save you the time and trouble of appealing.
If you do not agree with a payroll assessment for CPP contributions, EI premiums, or income tax, or you have received a CPP/EI ruling letter and you disagree with the decision, you have 90 days after the date of the notice of assessment or notification of the ruling to appeal.
To appeal a CPP/EI ruling decision or payroll deductions assessment, you can choose one of the following:
- Access My Business Account, if you are a business owner, and select Register a formal dispute for your payroll program account.
- Access Represent a Client. If you represent a business, select Register a formal dispute for a payroll program account. If you represent an individual, select Register my formal dispute, and then select CPP/EI ruling in the subject area.
- Access My Account for Individuals, if you are an individual, select Register my formal dispute, and select CPP/EI ruling in the subject area.
- Write to the chief of appeals at:
CPP/EI Appeals Division451 Talbot StreetLondon ON N6A 5E5
Payroll Taxes Paid By Employer
Do employers have to pay taxes on employees? Yes, yes they do. And here are the ones that employers are responsible for:
- Social Security tax
- Medicare tax
- Federal unemployment tax
- State unemployment tax
What about income taxes? Do employers pay income tax for employees? No, employers do not pay income taxes for their employees. Employees are solely responsible for income tax payments, which employers must withhold.
Now that you know which taxes are your responsibilities, you might be wondering, OK, so how much payroll tax will I pay? That answer depends. Your payroll tax liability varies based on the number of employees you have, how much you pay those employees, and where your business is located.
If you want to know how much your payroll tax liability is, familiarize yourself with how to calculate payroll taxes for employer share below.
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Payroll Taxes Fund Social Security And Medicare
The two main federal payroll taxes levied on wages are known as Federal Insurance Contributions Act taxes. Employees and employers both pay FICA taxes: employees usually have them withheld from their paychecks, while employers pay them in addition to any other taxes they owe. However, most economists agree that employees bear the true cost of employer payroll taxes in the form of lower wages. The two FICA taxes are:
- Social Security tax, also known as the Old-Age, Survivors, and Disability Insurance tax. It is levied at a rate of 12.4 percent up to a maximum amount of an employees wages . This wage cap is adjusted annually to take account of increases in average wages. The revenues go toward funding Social Security, which pays benefits to retirees, persons with disabilities, and survivors of deceased workers.
- Medicare tax, also known as the Medicare Hospital Insurance tax. It is levied at a rate of 2.9 percent of wages unlike the Social Security tax, there is no wage cap. Married filers earnings over $250,000 are taxed at an additional 0.9 percent, for a total of 3.8 percent on this income. Revenues from the Medicare tax support the hospital insurance portion of Medicare.
People who work for themselves pay a self-employment tax the Self Employment Contributions Act tax to fund Social Security and Medicare. These taxes are equivalent to FICA taxes the same total rates and caps apply.
Remitter Types And Due Dates
Remittance due dates are always based on when an employee is paid for their services rather than the pay period that the services are provided in. For example, if a pay period ends in January but the employee gets paid for this period in February, the remittance due date would be determined from the payday in February.
You can view remitting requirements through:
- My Business Account, if you are the business owner
- Represent a Client, if you are an authorized employee or representative
Download the CRA Business Tax Reminders mobile app to create custom reminders and alerts for key CRA due dates for instalment payments, returns, and remittances. For more information, go to Mobile apps Canada Revenue Agency.
Note
All payments made after the due date are assessed a penalty calculated at graduated rates. For details, see Failure to remit and remitting late.
Average monthly withholding amount
Quarterly remitting for new small employers
If you are an eligible new small employer who will pay remuneration for the first time, you have the option to remit your payroll deductions quarterly instead of monthly for the first year.
You will be eligible if you meet both of the following conditions:
- your monthly withholding amount is less than $1,000
- you have a perfect compliance history
Your MWA is the total of the CPP, EI and income tax deductions plus your share of CPP and EI for the month that you will remit to the CRA.
The due dates are April 15, July 15, October 15, and January 15.
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