Tax is a Family Affair

As your T4’s from employment income arrive, it doesn’t hurt to check they are right. Here’s how:

Start with Gross Income in Box 14 includes taxable benefits, usually found in Box 40. Taxable benefits information - CRA T4130 Employers’ Guide – Taxable Benefits and Allowances. Deduct taxable benefits from gross income to arrive at your gross income before benefits.

Next, deduct what your employer deducted before they paid you every pay period:

There are all sorts of deductions from your net pay found in the various boxes on your T4:

1. EI premiums – employee portion (your employer contributed another 1.4x that amount)
2. CPP premiums – employee portion (your employer contributed an equal amount)
3. Income tax withheld and remitted on your behalf
4. Union dues (ponder the value of this and realize the futility…)
5. Pension or RRSP contributions – sometimes your employer has a matching plan but you won’t see those numbers on your T4 directly, what you’ll see instead is the pension adjustment that reduces how much you can contribute outside of the pension. If it’s a great employer contribution, your pension adjustment number will be larger)
6. 6.     Box 85 is the premiums paid on your behalf because you are participant in the company benefit plan for Extended Health and Dental Benefits, or you have a PHSP – Private Health Services Plan. 

Add up all these deductions and deduct the total from your gross pay net of taxable benefits and hopefully, you will arrive at your net pay? That’s why we’re doing this, you want to find out if your T4 is right.

Dig out your pay stubs. Add up your net pay from the stubs, or if you tossed your paystubs, add up your bank statement deposits each pay period during the year.

Compare the total to your net pay per your pay stubs deposited to your bank account.

Is there a difference? Can you tell what it is? If not, check your pay stubs for other deductions.

What else might be deducted from your paycheque each pay period before you are paid? Are there life insurance premiums, or other insurance plans, for example, is there a disability plan that you pay for? BTW, it’s a good thing if you pay for that disability insurance. If you ever collect, as in become disabled and require the insurance, those payments to you from the insurance company should be tax free.

If you still can’t figure it out, ask your employer for a reconciliation of what else they paid for on your behalf. Maybe an annual employee social fee?

There have been times when I’ve checked a T4 against the paystubs and found there was a mistake, requiring the employer to re-issue the T4’s. It does happen, hopefully not often, but you never know.

This is just a part of the story about how Tax is a Family Affair

For more on how tax credits work, check back for more blog posts, visit my website tab, Learn about Tax>Tax is a Family Affair,

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Eileen Reppenhagen, CGA

Tax Detective ^(r)

www.taxdetective.ca

@TaxDetective