Last week I talked about the joy of balancing your T4 Summary, but I did not provide a checklist of how to do that. This week I am showing you how to balance your T4’s.
T4’s are a part of your life when you have employees in your business. You pay your employees and you have to take deductions from their pay for Canada Pension Plan (CPP), Employment Insurance (EI) and income tax (no acronym). You have to send the money you deduct from the employees, with some of your own money to Canada Revenue Agency (CRA) by the 15th of the next month. The amounts of EI, CPP and income tax that you deduct from your employees are called source deductions and the amount you send to the government is called your monthly remittance. Ideally, when you total up the source deductions for all your employees it will agree to the amount of your remittances.
What do you need to start this process?
– You need a list of your employees and how much you paid them in the calendar year as well as how much you deducted from each of them for EI, CPP and income tax. This list should look like this.
– You also need the know the amount you have remitted to CRA and you get that either by adding up the amount on the 12 payments you made – or you can access your account on the CRA website and get the total from there. You need to know your business number to do that.
– Once you have gathered the above information you can fill in the T4 Slips, one for each employee. You need the full name, address and social insurance number for every employee. On each T4 slip the total wages you paid to that employee are entered in box 14, CPP deducted goes in box 16 and EI is box 18, the tax you withheld is entered in box 22. The numbers that are entered in box 24 and 26 are the pensionable and insurable earnings for the year. Generally, these numbers are the same as box 14 until you reach the annual maximums. For 2017 the maximum number is box 24 is $51,300 and the maximum number is box 26 is $55,300.
– You add up all the numbers on the T4 slips and fill in the T4 Summary Box 16 is the total amount of CPP you withheld from employees, box 27 is the employer amount of CPP which is the same number as in box 16. EI withheld from employees is reported in box 18 and the employer amount should be 1.4 times box 18, because an employer is expected to send in 1.4 times the amount that was withheld from the employees. In our example the EI withheld is $1,222.50 (box 18) so the amount in box 19 should be $1,711.50. (1.4 times $1,222.50). The amount in box 22 is the income tax that was withheld from employees; luckily the employer does not have to match that!
– Box 88 is the number of T4 slips you are filing and box 14 on the T4 summary is the total of all of the box 14 amounts on the T4 slips.
– Now you add up the numbers on the summary in boxes 16, 27, 18, 19 and 22 and put the total in box 80. The amount that you sent to CRA during the year is entered in box 82 and the two numbers, box 80 and box 82 should be the same. If it balances you are finished, sign it and file it with CRA, either electronically or by mail, and do the dance of joy!
If your T4 summary does not agree to the remittances, then you should:
– Check all your additions.
– Check to see that you have made all your monthly remittances. If you know that you have not paid every month then the T4 Summary will show a balance owing, and it should agree to the month or months that you have not paid.
– If you have made payments but the summary does not agree to the remittances then it is possible you made mathematical errors during the year. Depending on how much money you owe, you could decide to check each month to see if you can figure out where you made a mistake in remitting to CRA. If the amount of the difference is small then you might just send it with the summary, rather than revisiting all your calculations. This will depend on your tolerance for bookkeeping.