We know TD1 tax credits can be a confusing topic for many employers, but don't worry. You're not alone! If you have questions about TD1s, this article will walk you through everything you need to know.
TD1 Tax Credits
All employees are eligible for basic personal tax credits on the federal and provincial levels. These tax credits are automatically applied to the employee's taxable income, and the employee is not taxed until the tax credit amounts are exceeded.
Using the federal form below as an example, you wouldn't need to do anything further if the employee enters the basic amount of $15,000. You can find the basic amount on line 1 of the TD1 form.
For both the federal and provincial forms, Humi will automatically consider the "Basic Personal Amount." The basic personal is subject to change on an annual basis.
However, suppose the employee enters a different amount on line 1 than the basic personal amount. In that case, you must manually enter the difference on their employee profile in the "Additional Tax Credit" section of the "Job & Pay" tab.
This section is where you can review any tax credits that are currently in effect and add any additional tax credits that are required based on the employee's completed TD1 form.
- In People, use the search bar to find the employee you require and click on their name.
- Click on the Job & Pay tab on their employee profile and scroll down to the Additional Tax Credits section.
- Click + Add to open the creation window for personal tax credits.
Enter the credit name and amount, then select the jurisdiction based on the employee-submitted form.
- If they gave you the Federal form, select Canada on the dropdown menu.
- If they gave you the Provincial form, select the correct province on the dropdown menu.
- Select the effective date and click the Save button.
The tax credit will now be displayed on their employee profile and will change the amount of tax being withheld for the employee.
If the employee enters an amount on lines 2-12 of the TD1 form, you would also need to manually input that amount on their employee profile by following the steps outlined above.
We strongly advise you to consult an accountant to confirm if the employee is eligible for additional tax credits. Adding a tax credit here will reduce the income tax deducted per pay period and reduce the tax remittance to the CRA.
Do not create a line item to enter the Total Claim Amount in the app.
If your employee has more than one employer or payer at the same time, enter a negative value under Additional Tax Credits. For example, on the 2023 Federal TD1 form, you would enter "-15,000" under the "Canada" jurisdiction. You should do the same for the indicated amount under the relevant province if they submitted the provincial form.
The CRA may impose consequences if the employee earns more than the "Basic Personal Amount" at any time.
Suppose the employee earns an amount that's between the basic amounts of the Federal TD1 and Provincial TD1. In that case, we don't recommend making the employee tax-exempt and they will continue to have income taxes deducted from each pay. This way, they'll be eligible for a tax return rather than owing CRA come tax season.
On the back of the TD1 form, there's a section called "Additional Taxes to be Deducted." So if the employee entered an amount here, they want you to remit an additional tax amount to the CRA.
If the employee has filled this in with an amount, you need to manually enter this amount on their employee profile. In the "Job & Pay" tab, scroll down to the "Additional Taxes to be Deducted (TD1)" section and enter the amount from their TD1 form.
- Humi will take into account the "Basic Personal Amount" for both the federal and provincial TD1 forms, and this amount is automatically updated each year.
- If you entered an "Additional Tax Credits" amount on an employee profile, Humi would never remove or update this information. Instead, it must be manually updated by the admin each year.
- It is the employee's responsibility to let you know if there are any changes to their personal tax credits.
- Any changes made in Humi are applied to the next payroll processed - Humi does not retroactively make adjustments. Therefore, the CRA would handle any adjustments necessary in the next tax season.
- If the employee is unsure how to fill in the TD1 tax forms, they should contact an accountant for assistance.