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    Payroll Deductions Formulas: 115th Edition Effective January 1, 2022

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    Payroll Deductions Formulas: 115th Edition Effective January 1, 2022

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    Payroll Deductions Formulas: 115th Edition Effective January 1, 2022

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    Bs Ip arses Revenve Agence dy vera Agency di Canada Payroll Deductions Formulas 115th Edition Effective January 1, 2022 Tat276) Rew 2001 Canadt Is this guide for you? ‘Use this guide if you are a payroll software provider or a company which develope its own in-house payroll solution ‘This guide has the formulas you need to determine federal, provincial (except Quebec), and teritoria income taxes, Canada Pension Plan (CPP) contributions, anc employment insurance (EI) premium deductions. The formulas also let youcalculate payroll deductions for income sources such es commission, pension, bonuses, andl retroactive pry increases ‘The formulas used in this guide to calculate statutory deductions have been approved for purposes of the Income Tax Act, the Canada Pension Plan, and the Employment Insurance Act, as well as their elated regulations and any amendments proposed to these acts For more information on income amounts that are subject to payroll deductions, see the publication T4001, Employers’ Guide — Payroll Deductions and Remittances If you have questions about the formulas inthis guide, contact your tax services office or tax centre For the address and telephone numbers of your tax services office or ax centre, see the listings in the government section of your telephone book or ‘visit camada.ca/taxes Distribution of this guide ‘This guide is available in electronic format only. Electronic mailing lists — more ways to serve you! ‘We provide an electionic service that can notify you immediately, fice of chaige, of any changes for payroll deductions. To subscribe, go to canada.calcra-email lists and enter your business's email address for each mailing lst that you want to join, Payroll Deductions Online Calculator For verifying your payroll deductions, you can use the Payroll Deductions Online Calculator (PDOC). Tie calculator includes an option to help you make sure that enough Canada Pension Plan contributions and employment insurance premiums have been ‘withheld for fill-year employees. Itcalculates payroll deductions for the most common pay periods, as well as the applicable province (except Quebec) or territory. ‘The calculation is based on exact salary figures Effective January 1, 2022, PDOC users may choose to calculate personal tax credits by either entering the Total Claim value manually orby selecting the conesponding claim code. PDOC is available at canada.cafpdoe Payroll Deductions Tables Using the following links you can download the piblications T4032, Payrell Deductions Tables and T4008, Payroll Deductions Supplementary Tables. You can also choose to print only the pages or information that you need. For more information on payroll, see our webpage at canada.calpayroll canada.cataxes Table of contents What's new for January 1, 2022? Indexing Federal Changes Federal Basic Personal Amount. Provincial and Temitoial Changes. New Brinswick Newfoundland end Labrador Nova Scotia Prince Edward Island. Yukon Changes in the guide ‘Chapter 1- General information Rounding procedures. ‘Tax deductions comparison (Chap ter 2 - Personal tax credits returns (Ferm TD1), Option 1 - Indexing of personal amounts Option 2 - Claim Codes Federal, provincial, and terttoral claim codes Federal Basic Personal Amount (BPAF) Formula Nova Scotia Basic Personal Amount (BPANS) Formula ‘Yukon Besic Personal Amount (BPAYT) Formula Chapter 3 - Glossary. Table 3.1 Glossary. Chapter 4— Option 1 - Tax Formuhs Step 1 - Formula to calculate annual taxable income (A). Step2 Formula to calculate basic federal tex (T3) Step3 Formula to calculate the annual federal tax payeble (T1) ‘Tax calculation formulas for bonuses, retroactive pay increases, and other non-periodic payments Step 4—Formula to calculate annual basic provincial or tenttoril tax (T'4) Step 5 — Formulas to calculate the annual provincial or territorial tax deduction (T2) Alberta British Columbia Manitoba New Brunswick. Newfoundland and Labredor Northwest Tenztories. Nova Scotia Nunavut Ontario. Prince Edward Island. Quebec. Saskatchewan Yukon. Step6— Formulas to calculate the estimated federal and provincial or temtitoril tax deductions (7) for the pay period. canada.cataxes 10 ul in 12 13 4 4 4 15 15 15 16 16 16 16 "7 18 18 18 18 ‘Chapter § - Option 2 - Tax formulss based on cumubtive averaging, Calculation of income Calculation of tax for the pay period. Special situations Formula to calculate annual taxable income (A) Formula to calculate basic federal tax (T3) Formula to calculate the federal tax payable (T1) Formulas to calculate jrovincial and tersitoial tax payeble (2) Formulas to calculate the estimated federal and provincial or temitoriel tex deductions (T) for the pay period. ‘Chap ter 6 — Canada Pension Plan (CPP) Formula to determine CPP contributions for employees receiving salary or wages Formula to determine CPP contributions—only for employees paid by commission. Formula to determine CPP contributions for employees who were transferred by their employer from Quebec toa location outsice Quebec during the year receiving salary or wages. Formula to determine CPP contributions for employees who were transferred by their employer from Quebec toe location outsitle Quebec during the year paid by commission Special CPP situations Employee's CPP basic exemption for various pay periods Chapter 7 - Employment Insurance ED Formula to calculate Employment Insurance (EI) premiums Chapter 8 - Rates and amounts ‘Table 8.1 Rates (R, V), income thnesholds (A), and constants (K, KP) for 2 ‘Table 8.2 Other rates and amounts for 2022 ‘Table 8.3 Canada Pension Plan / Quebec Pension Plan. ‘Table 8.4 Employment Insurance 2022 rates and amounts Claim codes for 2 ‘Table 8.5 Federal Claim Codes (using maximum BPAF) ‘Table 8.6 Alberta claim codes ‘Table 8.7 British Columbia claim codes. ‘Table 88 Manitoba claim codes Table 89 New Brunswick claim codes ‘Table 8.10 Newfoundland and Labrador claim codes ‘Table 8.11 Nova Scotia claim codes (using maximum BPANS) ‘Table 8.12 Northwest Teritories claim codes ‘Table 8.13 Nunavut claim codes ‘Table 8.14 Ontario claim codes ‘Table 8.15 Prince Edward Island claim codes. ‘Table 8.16 Saskatchewan claim codes. ‘Table 8.17 Yukon Claim Codes (using maximum BPAYT) ‘Table 8.18 Rates (R, V), income thresholds (A), and constants (KC, KP) for 2021 ‘Table 8.19 Other rates and amounts for 2021 ‘Table 8.20 Canada Pension Plan / Quebec Pension Plan 2021 rates and amounts ‘Table 8.21 Employment Insurance 2021 rates and amounts rates and amounts Laversion flangaise de cette publication est intitulée Formules pour le calcul des retenues sur la paie ~ 115* dition 4 canada.cattaxes 2 2 x 2 x What’s new for January 1, 2022? ‘This guide reflects some income tax changes recently announced which, if enacted as proposed, would be effective January 1, 2022. We recommend that you use the Peyroll Deductions Online Calculator (PDOC), the publication T4032 Payroll Deductions Tables, or the publication T4008 Payroll Deductions Supplementary Tebles, and the formulas inthis guide for withholding, starting with your frst payroll in 20 Effective January 1, 2022, PDOC will accept direct entry of Total Claim Amount (TC) and Total Claim Amount Provincial or temitorial (TCP), Indexing For all federal and provincial or temitoral indexed amounts for Income tax, Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Employment Insurance (E11), refer to Chapter 8. Information on provinces and teritories that do not use indexing is also available in Chapter 8. Indexing means thatthe values are adjusted based on changes to the consumer price index Federal Changes Federal Basic Personal Amount (On June 29, 2021, Bill C.30 received Royal Assent For 2022, employers are to use the maximum BPAF of $14,398 forall employees Unless the employee provides a new Form TDI. Ifthe BPAF formula wes previously implemented on your payroll system, you can continue fo use it, Employees with net income above $155,625 can ask for additonal fax to be deducted, by. completing the form TD1 Provincial and Territorial Changes Below are the provincial and temitorial tax changes effective January 1, 2022. The current and previous year figures for the most commonly used rates, amounts, and claim codes can be found in Chapter 8 New Brunswick Effective January 1, 2021, the tax rate applied to the fist tax bracket was decreased fiom 9.68% to 9.40%. The prorated tax rate, effective July 1, 2021, was 9.12%. Newfoundland and Labrador (On June 23, 2021, the Newfoundland and Labrador government enacted a law adjusting the tax brackets and tex rates for higher income earners. Tax rates have been adjusted for income above $139,780. New tax brackets have also been created for those raking more than $250,000 1» Tax rates for income between $139,780 and $195,693 increased fiom 17.3% to 1787 ‘Tax rates for income between $195,693 and $250,000 increased from 18.3% to 19 87 New tax bracket andl rate for income between $250,000 and $500,000 is 20.8% New tax bracket andl rate for income between $500,000 and $1,000,000 is 21.3%. New tax bracket and rate for income more than $1,000,000 is 21.8% Nova Scotia For 2022, employers are to use the maximum BPANS of $11,481 forall employees tnless the employee provides @ new Form ‘TDI. Ifthe BPANS formula wes previously implemented on your payroll system, you can continue fo use i. Prince Edward Island ‘The legislated basic personal amount increased from $10,500 to $11,250 Yukon For 2022, employers are to use the maximum BPAYT of $14,398 for all employees unless the employee provides a new Form ‘TDI. Ifthe BPAYT formula was previously implemented on your payroll system, you can continue fo us i. Changes in the guide = The chapters for Personal Tex Credits Returns ancl Claim Codes (Chapter 2 and Chapter 3 respectively inthe January 2021 edition) have been consolidated to Chapter 2 inthis edition, as both those chapters dealt with the calculation of personal fax credits ‘= For British Columbia and Ontario, a new Factor S2 has been added to name the value of the basic amount used in the calculation of Factor canada.cataxes ‘= 2022 indexing rates can be found onlyin Table $2 s= See Tables 8 3 and 8.4 for updates to the Canada Pension Plan andl Employment Insurance respectively. Chapter 1- General information Rounding procedures For all mathematical calculations inthis guide, use the following rounding rules except when we specify otherwise For income tax deductions Ifthe figure calculated for an employee's income tex deduction for a certain pay period has three or more digits after the decimal ‘point, increase the second digit efter the decimal point by one ifthe third digit is five or more, and drop the third digit. Ifthe third ligit ater the decimal point is less than five, drop the third digit. For Canada Pension Plan (CPP) basic exemption and contributions Determine an employee’s basic exemption fora pay period by dividing the annual basic exemption by the number of pry periods inthe calendar year. Ifthe figure has three or more digits efter the decimal point, drop the third digit after the decimal point ‘When the employee’s contribution to CPP for the pay period has three or more digits after the decimal point, increase the second digit after the decimal point by one if the third digit i five or more, and drop the third digit Ifthe third digit after the decimal point is less than five, drop the third digit For Employment Insurance (El) premiums ‘When the employee’s or employer's El premium forthe pay period has three or more digits after the decimal point, increase the second digit by one ifthe thud digit is five or more, and drop the third digit Ifthe third digit efter the decimal point is less than five, drop the third digit Tax deductions comparison When the tax deductions amount using Option 1 in this guide is compared to the tax deductions amount in the publication T4032, Payroll Deductions Tables, the amounts will not necessarilybe the same, Any cifference results fiom the fact that the amounts in the T4032 are based ox (@) the mid-point ofthe range of remuneration under the “Pay” column, (a) the federal tax cre for Canada Pension Plan or Quebec Pension Plan contributions and employment insurance premium deductions is based on the amount determined in item (i); and (Gi) the midpoint of the “Claim code” amounts on federal, provincial, and teritorial TD1 forms is used, except for code 1 where the actual basic personal non-refundable fax credit amount is used. For claim code O, no personal tax credits amounts are used. when calculating the tax deduction amounts. Chapter 2 - Personal tax credits returns (Form TD1) To determine federal total claim (TC), use the total claim amount on Form TDI. Employers are to update TC at the beginning of each year by using either indexing or claim codes To determine provincial or territorial total claim (TCP), use the totel claim amount on the appropsiate provincial or teritorial Form TDI. Employers are to upslate TCP at the beginning of each year using either indexing or claim codes. Since claim codes use a mid-point in a range, indexing is considered more accurate A separate worksheet, TD1-WS, is available for employees or pensioners who want to calculate partial claims for some of the {federal personal tax ciedits amounts Option 4 - Indexing of personal amounts Each year, cerfnin persona tx credit amounts are indexed based on changes tothe consumer price index. Since only some of the ‘mounts ere indexed, we recommend tht you record separately in your payroll records each fem shown onthe employee's penmioner's TDI form. This wil ellow you to automatically increase the applceble indexed claim amounts when necessary. This also means you will ot have to ask your employees or pensioners to file a new TDI form when indexing applies ‘You can use the following method to calculate the value of TC or TCP (personal tax credits amount) when indexing applies Description Amount 1. Enter the foal claim amount reported on Form TDI 3 ‘2. Minus: Prior year BPAF, BPANS, BPAYT. $ 6 canada.cattaxes 3. Minus:Any pension income amount, tuition fees, end full-time or part-time education amounts claimed, onForm TDI* Amount subject to annual indexing (line 1 minus line 2 and 3) Enter the indexing factor that applies for the year*™* x ‘Multiply line 4by line 5 (rounded to the nearest dollar) ‘Add cument year BPAF, BPANS, BPAYT*** Enfer the amount fiom line 3 (non indexed amounts) Revised factor TC or TCP (total of personal tax credits amounts) (Line 6 plus line 7 and 8) * For Ontario only, do not include any amounts on line 3, since Ontario credits are indexed, ** Yukon personal amounts are not directly attributable to indexing, because they have harmonized amounts with the federal values. ***Use the maximum BPAF, BPANS, BPAYT. If the BPAF, BPANS, BPAYT formula was previously implemented on your payroll system, youcan continue to use these formulas. Ifa cwrent year Form TD) is provided, use the amount from Line 1 of the Form TDI instead. Ifno Form TD! is on file for the employee or pensioner, use BPAF, BPANS, BPAYT formula at the end of this chapter No indexing applies to Nova Scotia, Prince Edward Island, and Alberta Option 2 — Claim Codes ‘The claim code depends on the total personal amount (TC) an employee claims on Form TDI. Once the claim code has been established, the same code can be used every year. For example, fan employee was at claim code 3 in 2021, then thet employee ‘wil emain et claim code 3 in 2022. If en employee suits a new Form TDI, use the total claim amount to determine the new claim code Claim codeo ‘This code represents no claim amount allowed. If the federal claim cade is O because the employee is @ non-resident, the provincial claim code must also be 0. Federal, provincial, and territorial claim codes ‘The claim amounts that comespond tothe federal claim codes are different than the claim amounts that comespond tothe provincial or temtorial claim codes. In Chapter 8, you will find listing of claim codes and amount ranges. Note: Ifyou have received a new Form TDI and the basic personal amount isnot the maximum BPAF, BPANS or BPAYT, you will need to create your own claim code charts by following the instructions below. Otherwise, use the claim code chat wing the maximum BPAF, BPANS and BPAYT in Table 8.5, 11 and 8.17 respectively. ‘The Federal ane Yukon Claim Code chart income range is $2,430 between all claim codes once the BPAF or BPAYT has been calculated. For example, ifthe Federal BPAF is $12,719 for putcular employee, then claim code 2 range would be $12,719 — $15,149 and so forth up to claim code 10. Based on above example, to calculate the non reftudable tax credits for the BPAF of $12,719, find the mid-point between $12,719 and $15,149, this amount willbe the total claim (Factor TC) for your calculation, amultiply this TC by lowest federal tax rate. ‘The Nova Scotia Claim Code chart income range is $1,600 between all claim codes, once the BPANS has been calculated. For example, if BPANS is $11,481 for a particular employee, then the claim code 2 range would be $11,481 ~$13,081 and so forth upto claim code 10, Based on above exemple, to calculate the non refundable tex cedits for the BPANS of $11,481, find the ‘mid-point between $11,481 and $13,0SI, this amount willbe the total claim (Factor TCP) for your calculation, multiply this TCP bylowest provincial tax rate Effective January 1, 2022, PDOC will accept direct entry of TC and TCP. To verify your calctlations using PDOC simply input the amount for TC and TGP obtained fiom the appropriate claim code table If federal Form TDI is not submitted by the employer or pensioner, TC is calculated using the BPAF formula. Federal Basic Personal Amount (BPAF) Formula Where NI* < $155,625, BPAF = $14,398 Where $155,625 < NI* < $221,708, BPAF **= $14,398 - (NI* - $155,625) » ($1,679 / $66,083)"** Where NI* > $221,708, BPAF = $12,719 ** Variable NI represents Net income for the year from the employer= A+HD canada.caftaxes 7 ‘** Ifthe BPAF has three or more digits after the decimal point, increase the second digit afte the decimal point by one if the third digits five or more, andl drop the third digit. Ifthe thid digit ater the decimal point is less than five, drop the ‘third digit ‘+ Note that there is no rounding on this division Ifthe appropriate provincial or tenitorial Form TDI is not suimitted by the employee or pensioner, TCP is the province or temitory’s Basic Personal Amount. For Nova Scotia and Yukon, use BPANS and BPAYT formulas respectively. Nova Scotia Basic Personal Amount (BPANS) Formula BPANS= Where A <$25,000, BPANS is equal to $11,481; Where $25,000 < A < $75,000, BPANS is equal to. $11,481 ~ [(A $25,000) « 67)" Where A > $75,000, BPANS is equal to $8,481 * IfNova Scotia’s basic personal amount (BPANS) has three or more digits after the decimal point, increase the second digit by one if the third digit is five or more, and drop the third digit. If the third digit after the decimal point is ess than five, drop the third digit Yukon Basic Personal Amount (BPAYT) Formula ‘The Yukon Basic Personal Amount (BPAY) formula mirrors the federal Basic Personal Amount (BPAF) formula, BPAYT= BPAF Chapter 3 - Glossary Table 3.1 Glossary Factor__| Meaning (for complete details, see the formulas) A "Annual taxable income 8 Gross bonus, retroactive pay increase, vacation pay when vacation is not taken, accumulated overtime payment or other non-periodic payment Bi Gross bonuses, retroactive pay increases, vacation pay when vacation isnot taken, accumulated overtime payments or other non-periodic payments year-to-date (before the pay period) BPAF | Federal Basic Personal Amount BPANS _ | Basic Personal Amount for Nova Scotia BPAYT _ | BasioPersonal Amount for Yukon c Canada (or Quebec) Pension Plan contributions for the pay period CEA Canada Employment Amount, a non refundable tax credit used in the calculation for Kaand KP D Employee's year-to-date (before the pay period) Canada Pension Plan contribution with the employer (cannot be more than the annual maximum) Da Employee's year-to-date (before the pay period) Quebec Pension Plan contribution with the employer (cannot be more than the annual maximum) Dt Employee's year-to-date employment insurance premium wih the employer E Total commission expenses deductions reported on Form TD1X el Employment insurance premiums for the pay period F Payroll deductions for the pay period for employee contributions to a registered pension plan (RPP) for current and past services, a registered retirement savings plan (RRSP), to a pooled registered pension plan (PRPP), or a retirement compensation arrangement (RCA). For tax deduction purposes, employers can deduct amounts contributed to an RPP, RRSP, PRPP , or RCA by or on behalf of an employee to determine the employee's taxable FA ‘Annual deductions such as child care expenses and support payments, requested by an employee or pensioner and authorized by a tax services office or tax centre Fa ‘Annual alimony or maintenance payments required by a legal document dated before May 1, 1997, tobe payroll-deducted authorized by a tax services office or tax centre Fa Employee registered pension plan or registered retirement savings plan contributions deducted from the current ‘non-periodic payment. You can also use this feld or design another to apply other tax-deductible amounts to the nnon-periodic payment, such as union dues: canada.cataxes Factor Meaning (for complete details, see the formulas) Fa Employee registered pension plan or registered retirement savings plan contributions deducted fom the year-to-date ‘non-periodic payments. You can also use this fleld or design another to apply other tax-deductible amounts to the ‘non-periodic payment, such as union dues. 6 (Gross commission amount including gross salary atthe time of payment, plus any taxable benefits for commission-remunerated employees who have filed out Form TD1X. When an employee has not fled Form TD1X. taxis caloulated the regular way 4D ‘Annual deduction for living in a prescribed zone, as shown on Form TD1 T (Grass remuneration forthe pay period. This includes overtine eared and paid inthe same pay period, pension income, qualified pension income, and taxable benefits, but does not include bonuses, retroactive pay increases, of other non-periodic payments " Total remuneration forthe year reported on Farm TD 1X. This include commission payments, salary (where applicable), non-periodic payments, and taxable benefits ie Insurable earnings forthe pay period including insurable taxable beneffts, bonuses, and retroactive pay increases « Federal constant. The constant is the tax overcharged when applying the 20.5%, 26%, 25%, and 33% rates to the annual taxable income A P Provincial or teritorial constant ca Federal non-refundable personal tax credit (the lowest federal tax rate is used to calculate this credit) oP Provincial or territorial non-refundable personal tax credt (the lowest tax rate ofthe province or terrtory is used to Caloulate this credit) 2 Federal Canada Pension Plan contributions and employment insurance premiums tax credits for the year (the lowest federal tax rate is used to calculate this credit), Note: Ifan employee has already contributed the maximum CPP and EL, for the year with the employer, use the maximum CPP and E| deduction to determine the credit fo the rest ofthe year If, during the pay period in which the employee reaches the maximum, the CPP and El, when annualized, is, less than the annual maximum, use the maximum annual deduction(s) in that pay period KP Provincial or territorial Canada P ension Plan contributions and employment insurance premiums tax credits for the year (the lowest provincial or territorial tax rate is used to calculate this credit) f an employee reaches the maximum CPP or El forthe year with an employer, the instructions in the note forthe K2 factor also apply to the K2P factor, For employees paid by commission, use the federal K2 formula for commissions and replace the lowest federal rate in the K2 formula wth the lowest provincial or territorial tax rate Ka ‘Quebec Pension Plan contributions, employment insurance premiums, and Quebec Parental Insurance Plan premiums federal tax credits for the year (the lowest federal tax rate is used to calculate this credit) cy Other federal non-refundable tax credits (such as medical expenses and charitable donations) authorized by a tax services office or tax centre eP Other provincial or territorial non-refundable tax credits (such as medical expenses and charitable donations) authorized by a tax services office or tax centre Ka Federal non-refundable tax credit calculated using the Canada employment amount (the lowest federal tax rate is Used to calculate this credit) KP Tenitorial non-refundable tax credit calculated using the provincial or territorial Canada employment amount (the lowest territorial tax rate is used to calculate this credit) L ‘Additional tax deductions for the pay period requested by the employee or pensioner as shown on Form TD1 Ler Federal labour sponsored funds tax credit Lop. Provincial or territorial labour-sponsored funds tax credit M ‘Accumulated federal and provincial or territorial tax deductions (ifany) to the end ofthe last pay period wt ‘Year-to-date tax deducted on all payments included in Bt " The number of days since the last commission payment. The minimum basic exemption amount of $67 30 is, included in the formula in ine with CPP legislation WI Net income forthe year ffom the employer P ‘The number of pay periods in the year Pr Pensionable income for the pay period, or the gross income plus any taxable benefits for the pay period, Including bonuses and retroactive pay increases where applicable PR ‘The number of pay periods lef inthe year (including the current pay period) R Federal tax rate that appliesto the annual taxable income A s Provincial tax reduction (only applies to Ontario and British Columbia) canada.cataxes 9 Factor | Meaning (for complete details, see the formulas) st “Annualizing factor 32 Basic amount usedin the calculation of Factor S (only applies to Ontario and Bitish Columbia) T E-limated federal and provincial or territorial tax deductions forthe pay period TH ‘Annual federal tax deduction T2 ‘Annual provincial or teritorial tax deduction (except Quebec) Ts ‘Annual basic federal tax Ts ‘Annual basic provincial or teritorial tax i Tax deductions, .e., bonuses or retroactive pay increases, payable now Te “Total claim amount” reported on federal Form TD1. If Form TD1 is not fled by the employee or pensioner, caloulate TC using BP AF formula, and for non-resident individuals, TC is $0. Ifthe claim code is E, T= $0. Ifthe province is Ontario, even ifthe claim code is E, the Ontaria Health Premium is payable on annual income over $20,000 Ter’ “Total claim amount” reported on the provincial or teritoral Form TD1. ifthis form is nat fled, TCP isthe provinclal or territorial basic personal amount, refer to Table 8.2. For Nova Scotia and Yukon, use BPANS and BP AYT formulas respectively. us Union dues for the pay period paid to @ trade union, an association of public servants, or dues required under the law ofa province to a party or advisory committee or similar body v Provincial or territorial tax rate for the year (does not apply to Quebec, outside Canada, or in Canada beyond the limits of any province or tertitory) vi Provincial surtax calculated on the basic provincial tax (only applies to Prince Edwerd island and Ontario) ve ‘Additional tax calculated on taxable income (only applies to the Ontario Health Premium) Y ‘Additional provindal tax reduction amount based on the number of eligible dependents used in the calculation of Factor S (only applies to Ontario) 1D Year-to-date, not including current pay period All factor definitions appear only in the Glossary unless ther detail ae requied in specific situations Chapter 4 - Option 1 - Tax Formulas “This option detexnines the fedevel and yrovincil or teuitrial tax deductions on salary, wages, taxable benefits, pension income, commissions, nd other periodic payments. This option can also be used to calculate the tex on a bonus or other non-periodic payment. ‘We use Option 1, with the exception of few factors, to determine the tax deduction amounts in the publicetions T4032, Payroll Deductions Tables, and T4008, Payroll Deductions Supplementary Tables, for each province and tersitory, as well as for Canada ‘beyond the limits of any province or teitory and outside Canada Outline of Option 1 In general, the Option 1 steps are as follows 1. Determine the taxable income forthe pay period (pay minus allowable deductions) and multiply it by the number of pay ‘periods inthe year to get anestimated annual taxable income amount. This annual taxable income amount is factor A. 2. Calculate the basic federal tax on the estimated annual taxable income, after allowable federal non-refundable tax credits. The basic federal tax is factor Ts Calculate the annual federal tex payable. This is factor T 4. Calculate the basic provincial or tezitorial tax on the estimated annual taxable income, after allowable provincial or tenzitorial ‘personal fax credits. The annual basic provincial or territorial taxis factor Ts Calculate the anual provincial or temitorial tax deduction. This is factor T2. To get the estimated federal and provincial or terttoril tex deductions for a pay period, add the federal and provincial or temtorial tex, and divide the result by the number of pay periods. This is factor T. ‘Special rues apply to determine the annual income for employees paid by commissions. A calculation is provided to determine ‘the tax deductions for bonuses, retroactive pay increases, and other non-periodic payments Note: Ifen employee or a pensioner has income from another source fiom which no tex has been deducted (for example, investment income or support payments), they could have a tax liability when they file an income tax and benefit retum for the year. The employee or pensioner can ask for more tax deductions, factor L, using Form TDL 10 canada.cataxes Step 1 — Formula to calculate annual taxable A ‘Anmual taxable income [Px (-F-Fo-Ui)]-HD-Fi If the result is negative, T = L. ‘Only for employees paid by commission: z -F*-F*- Ui" -HD-Fi-E If the result is negative, T= L. * Estimated deduction amounts for the year. For registered rettemuent savings plan (RRSP) contributions included inF, you will need to find out fiom your employee paid by commission the estimated or expected annual deduction, We recommend that you caution employees not to exceed their RRSP contribution lit for the year. A ‘The number of pay periods in the year: Weekly P = 52(or53 where applicable) Biweekly P = 26(or27 where applicable) Semi-monthly P = 24 Monthly Pe 1 Other P = 10,13,22, oranyother number of pay periods for the year Insituations where a garnishment or a similar order of @ cout or competent tribunal states thatthe alimony or ‘maintenance payment cannot be more than a certain percentage of the employee's net salary (net salary as defined in the gamishment or order), more calculations maybe requited, as follows: 1. Calculate the tax deduction amount and the net salaryamount using the alimony or maintenance amount shown in the garnishment or order. 2. Determine the alimony or maintenance payment to be withheld (Fa). This willbe either the maximum allowable as a percentage of the employee’s net salary calculated in | or the amount shown in the gemishment or order, whichever is less, 3. Determine the tax deduction for the pay period using the F2 amount in 2 [If the Fi amount is implemented after the fist pay period in the year, Fi mustbe adjusted using the following formula @ xF/PR Step 2 - Formula to calculate basic federal tax (Ts) b Ki ke Annual basic federal tax (Rx A)-K-K1-Ki-K3-Ke If the result is negative, Ts = $0 ‘Only for employees in Quebi (Rx A)-K-K1-K:Q-K5-Ks If the result is negative, T3= 90 Rand I ave based on 2022 index values for A see the Rates (R, V), income thresholds (A), and constants (K, KP) for 2022 Table $1 inChapter 8. 015 «TC [(0.15 «PC, maximum $3,499.80)) +(0.15 * (P * El, maximum $952.74)] ‘Only for employees in Queber: K2Q_ = Quebec Pension Plan contributions, employment insurance premiums, and Quebec Parental Insurance Plan premiums federal tax credits forthe year = (0.15 «(P *C, maximum $3,776.10) +(0.15 * (P » EI, maximum $723 60)) + (O15 «(P «IE «0.00404, maximum $434.72))* * Imeither case, for the rest ofthe pay periods inthe year, (P C), (P ED), or (P «IE x 0.00494) (as applicable) is replaced by the maximum annual deduction(s). This modification ensures thatthe employee will get the maximum CPP, El, and OPIP tax credit for the rest of the pay periods inthe year If you want to use a year-to-date method to calculate CPP, Bl, and QPIP federal tax credits, (P = C) and (P «ED can bbe modified as follows: canada.caftaxes " ( *C) is changed tothe lesser of @ $3,499.80; Gi) Year-to-date C +(PR ©) ( * ED) is changed tothe lesser of: @ $952.74, (i) Year-to-date EI+ (PR x ED) Only for employees in Quebec: ( * ED) is changed tothe lesser of: @ $7360, (i) Year-to-date EI+ (PR x ED) («IE « 0.00404) is changed tothe lesser of @ $447, (i) Year-to-date QPIP +(PR » IE «0.00494 Cnty tr employees paid by commission: = [(0.15 * (00570 x (11 -$3,500)*, maximum $3,499 80)) + (0.15 * (00158 *Ti, maximum $952.74)] * If the resulting amount is negative, enter $0 ‘Only for employees in Queber: KxQ = (0.15 x (0.0615 (11 -$3,500)*, maximum $3,776.10)) + (0.15 x (0.0120 * 1, maximum $723.60)) + (0.15 x (0.00494 x 1, maximum $434.72) * If the resulting amount is negative, enter $0 Note: ‘The preceding is subject tothe rules in Chapter 6 — "Canada Pension Plan (CPP)” and Chapter 7 ~“Employment Insurance (EI)” of this document and the instructions in Guide T4001 Employers’ Guide ~ Payroll Deductions and Remittances, Ks = Ifthe amounts implemented afer the fist pay period inthe year, (3 mustbe adjusted using the following formula @ «Ks)/PR Ke = Thelesserof @ O15 x A*, (a) 0.15 «CEA CBA is anindexed amount. See Table 8 2 Other rates and amounts + For the Canada employment amount, Ais the annual gross income from office or employment before deductions. Only include the amounts fiom office or employment, this is the sme amount you normally report inbox 14 of the 1 sip) Step 3 — Formula to calculate the annual federal tax payable (T:) Th = Anal federal tex deduction, excep for employees in Quebec, outside Canada, and in Canada beyond the Limits of ‘ny province or temtory = (T3-LCF)* * If the result is negative, enter $0. Only for employees in Quebec: = [(Ts-LCF)*- (0.165 x Ts)]* * If the result is negative, enter $0. Only for emp oyees outside Canada and in Canada beyond the limits of any province or territory: = (13 +(048 xT) -LOR* * Ifresult is negative, enter $0. 2 canada.cataxes LCF = Thelesserof @ $750; (@) 15% of the amount deducted or withheld during the year forthe acquisition, by the employee, of approved shares of the capital stock of a prescribed labour-sponsored venture capital corporation Note: If the shares are invested in a registered retirement savings plan, the amount invested canbe used to determine the ‘annual taxable income amount. Tax calculation formulas for bonuses, retroactive pay increases, and other non-periodic payments Introduction Generally, the tax on a bonus (or retoactive pay increase) is calculated by finding the tax on the total of regular annual income plus any previous bonuses plus the cuxrent bonus and subtracting the tax on the total of regular annual income plus any previous ‘bonuses. The difference will be the tax on the current bonus, In the optional year-to-date method outlined below, instead of annualizing the current income, use year-to-date income values and ‘year-to-date deductions as the annual income with and without the bonus, In either case the tax on the bonus is as follows: TB = The difference between: (@) the annual tax amount (T1 +2) based on the instructions in Step I below, and (Gi) the annual tax amount (T1 +2) based on the instructions in Step 2 below (1) Regular bonus calculation Step 1 Determine the annual fax (T1 +72) based on the annual taxable income (factor A) with the non-periodic payment payable now ‘The formula to calculate factor A is es follows A= (Px(-F-F2-Un)] -HD-Fi* +(B-F3)** +(B1- Fy" * Ifthe result is negative, enter $0, “+ Result cannotbe negative, and result cannot be negative after deducting CPP and El. Note: [Ifthe result above is les than or equal to $5,000, deduct 15% tax (10% in Quebec) from the bonus or retroactive ay increase Step 2 Determine the annual tax (Ti +T2) based on the annual taxable income (factor A) without the non-periodic payment payeble now. The formula to calculate factor A is as follows, A= (Px(-F-Fe-Uy]-HD-Fyt + (B1- Fo * Ifthe result is negative, enter $0 ** Result camnot be negative, and result cannot negative after deducting CPP and EI If there is no cunrent, use the most recent (2) Year-to-date bonus calculation (optional) Step 1 Determine the annual tax (T1 +72) based on the annual taxable income (factor A) with the non-periodic payment payable now ‘The annual taxable income (factor A) is based on a year-to-date concept, plus the estimated income forthe rest ofthe pay periods inthe year. YTD means year-to-date (before this pay period). The formula to calculate factor Ais as follows: A= ((YTD-FYTD-FAYTD-UnYTD) +(PR x (1-F-F2-U)) -Fi-HD}* +(B-F** +B Fy? * Ifthe result is negative, enter $0, ** Result cannotbe negative, and result cannot be negative after deducting CPP and El. Note: Ifthe result above is les than or equal to $5,000, deduct 15% tax (10% in Quebec) from the bonus or retroactive ay increase canada.caftaxes B A = ((YTD-FYTD-FYTD-ULYTD) +R = d-F- * Ifthe result is negative, enter $0 “+ Result cannot be negative, and result cannot negative after deducting CPP and EI U1) -Fi-HDJ* + (Bi -Fa)** Example for year-to-date bonus calculation method In this example, anemployee gote retroactive pay increase fiom $1,000 to $1,100 per week that applies to 25 weeks. Therefore, @ retroactive pay increase payment of $2,500 is payeble now. $1,000 will be directed to the employee's RRSP. Thirty pay periods have passed and 22 pay periods remain in the year. Year-to-date income is $30,000, year-to-date RPP is $1,350, and year-to-date ‘union dues are $150. The current income is $1,100 with RPP withheld of $45 and union dues of $5. The emiployee received a revious bonus of $1,000 with onlyCPP, El, end tex withheld from it. Step 1 A = Anmul taxeble income with the non-petiodic payment payzble now (QYTD -FYTD - FeYTD - U1YTD) +(PR = (1 -F -F2 -U1)) - Fi -HDJ* +(B -Fsy"* +B1-Fy* {($30,000 - $1,350 - $0 - $150) + (22 » ($1,100 ~$45 $0 -$5)) - $0 - $0] + ($2,500 -$1,000) + ($1,000 -$0) $28,500 + (22 » $1,050) +$1,500 +$1,000 $54,100 ‘Anmuel taxable income without the non-periodic payment payeble now ((YTD - FYTD - FY TD -UiYTD) +(PR x (-F -F2 - Un) -Fa-HD)* +B - FH)" ($30,000 - $1,350 - $0 - $150) +(22 = ($1,100 -$45 ~$0 -$5)) -$0 -$0) + (61,000 -$0) $28,500 + (22 « $1,050) + $1,000 After you have calculated the annual taxable income, factor A, in steps 1 and, calculate the factors Tl and T? in the same way s for regular remuneration Note: ‘The formula above canbe used to calculate the tax deductions on non-periodic payments such as accumulated overtime not aid in the same pay period eared, paid vacation not taken by the employee, and bonuses Step 4 — Formula to calculate annual basic provincial or territorial tax (Ts) Te = (WV *A)-KP-RuP-1GP -1P-KeP If the result is negative, Ts = $0. Step 5 — Formulas to calculate the annual provincial or territorial tax deduction (Tz) h Te+Vi+V2-$-LCP If the result is negative, T2 = $0. Only for employees in Quebec: Tr = $0 Only for employees outside Canada and in Canada beyond the limits of any province or territory: Tr = $0 Alberta Te = Te+Vvi-S-LOP If the result is negative, T2 = $0, Where Te = (V $35,659 $0 The lesser of: ($2,000, (i) 15% of the amount deducted or withheld during the year forthe acquisition by the employee of approved shares of the capital stock of prescribed labour-sponsored venture capital corporation Manitoba Te = T+Vvi-S-LOP If the result is negative, T2 = $0, Where Te = (V $6,387 V1=0.20 «(Ts -$4991) +0 36 x (Ts ~$6,387) ‘Where A < $20,000, V2 = $0 ‘Where $20,000 < A < $36,000, V2= the lesser of @ $300; i) 0.06 «(A $20,000) ‘Where $36,000 < A < $48,000, V2= the lesser of @ $450, i) $300 + (0.06 » (A $36,000) ‘Where $48,000 < A < $72,000, V2= the lesser of @ $600; Gi) $450 + (025 «(A -$48,000) ‘Where $72,000 < A $ $200,000, V2 = the lesser of @ $750, Gi) $600 +025 «(A -$72,000) ‘Where A> $200,000, V2= the lesser of @ $900; (a) $750 +(0.25 x (A -$200,000) Note: ‘The Ontario Health Premium (OHP) is not reduced by the Ontario tax reduction (factor S). The OHP is not related to the employer health tax for Onfanio. Include the OHP in the total federal and provincial tax deducted on T4 slips The lesser of @ Te+v1, (i) Bx G2+¥)]- (Te +Vy If the result is negative, S = $0 Where 'Y = The total of the following amounts es shown on Form TDION or for which the employee or pensioner has rade a wnitten or electronic request: ‘$475 multiplied by the mumber of disabled dependants, and ‘$475 multiplied by the mumber of dependants under age 19 Note: IFY is not used, any over deduction of tax will be considered when the individual files their income tax and benefit retum When possible, use the Y factor so canada.caftaxes " Prince Edward Island nh Te+V1-S-LCP Ifthe result is negative, T2= $0 Where Te = (V ©A)-EP-KaP -FoP -KP V and KP aze based on 2022 values for A see the Rates (R, V), income thresholds (A), and constants (K, KP) for 2022 Table 8.1 in Chapter 8 0.098 « TCP [0.098 = (P xC, maximum $3,499 80)) + (0.098 » (P * EL, maximum $952.74)] Where Ts < $12,500 vi=$0 Where Ts > $12,500 V1 =0.10 (T+ $12,500) Send LCP=$0 Quebec In this publication, we refer to the annual provincial or teritoral tax deduction as factor T2. However, factor T2 does not apply in the province of Quebec. Quebec administers its owm provincial income tex ancl Quebec Pension Plan contributions. If you have questions about the formulas for Quebec, please contact Revenu Quebec events Quebec 3800, rue de Marly Quebec (Quebec) GIX 4A5 Telephone 1.800.567.4692 Outside Canada 1.418.659.4692 Quebec employers whose employees receive income fiom tips and gratuities should review the section called “Calculating payroll deductions for employees in the hotel and restaurant business in Quebec,” in the publication T4032QC, Payroll Deductions Tables Saskatchewan th Ts +V1-S -LOP If the result is negative, T2 = $0, Where Te = (V

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