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Navigating the TD1

Whether or not you recall, you probably had to fill out the TD1 form when you started your job.  Most people don’t understand this form and sometimes even payroll people are unaware of its purpose.  If you are just as confused, please read on and consider make reading this blog post a requirement for all your new employees:

What is the TD1? 

The TD1 form helps workplace payroll departments determine the amount of taxes they must deduct from your pay cheque.  Since many people have different personal circumstances (dependents, supporting a spouse, kids in college, etc.), and since the money they make is taxed at different rates, this form allows employees to essentially ‘customize’ their tax deductions to meet their specific situations.   

The default amount on the TD1 form is merely the basic exemption, or tax credits.  All employees working in Canada are allowed to claim the basic exemption.  In fact, without filling out a TD1 form, your employer would have probably given you only the basic amount.  This is the option which would calculate the highest tax the government can collect from your pay cheque each pay period.  However, most people get refunds at tax time, which is often a result of paying a greater amount of income taxes for that calendar year of employment.  If the thought of letting the government keep more of your money than required- only to refund you later bothers you – see your payroll department and amend your TD1.  You are likely not claiming all the credits you need to pay lower taxes and realize a higher take home pay amount.   If you amend the amount of income taxes deducted from your pay cheque on the TD1, instead of seeing a refund in the spring, you should see smaller amounts spread over 12-months of pay cheques.   Just remember that if you have income from other sources subject to income tax, you may want to voluntarily increase your tax withholding to prevent a tax payment come spring when you are required to claim income from all sources on your tax return. 

What credits are available in the 2015 Personal Tax Credits Return?

See below for the 12 sections of the TD1 to understand if there are additional tax credits that may apply to you.  A tax credit in this case is an amount that is used to calculate how much tax to pay.  A workplace payroll department uses the total amount of your credits to determine how much tax to withhold.  The more credits you have, the less withholding tax is required.  You must not claim more credits than you are actually eligible for, and your payroll department can question your credit amounts. 

Here’s the list: 

1. Basic Personal: $11,327:  remember, everyone can claim this credit and claiming only this amount will provide you with the highest net income in which to calculate taxes. 

2. Caregiver for Children under 18: You can claim an amount if you care for an infirm child who is under 18.  Only one parent can take this credit. 

3. Age: Claim $7,033 if you will be 65 or older in the year.  This amount is also subject to the amount of income a person in this category will make in the year.  If you make over $35,466 the claim amount begins to get reduced. 

4. Pension Income: If you receive a pension that is not from the usual government issued pensions like CPP, OAS, GIS and QPP, then enter the lower of either $2,000 or the actual annual pension income you receive. 

5. Tuition, Education and Textbooks: This claim applies to students or those who pay for a student’s education.  This is often a very lucrative claim, but it is only temporary – the time available when you/your child is getting a post- secondary education.  There are lots of details in what you can claim.  See the TD1 form for instructions. 

6. Disability: This depends if you can claim for a disability on your tax return with form T2201.   

7. Spouse or Common-law Partner: If you support your spouse you can claim an amount.  If this spouse makes their own income, you will have to take that into consideration.  This claim is based on a certain salary maximum because if your spouse makes too much money, you cannot take this claim.    

8. Amount for an Eligible Dependent: This claim would be considered if you do not have a spouse but support a dependent relative.  You cannot take this claim for the same dependent as in #2 above. This claim is also adjusted by the amount of money your eligible dependent makes. 

9. Caregiver: Do you take care of a parent or grandparent?  Do you take care of a relative who is mentally or physically infirm? (i.e.: depending on you or others for their care?) If this situation applies to you, you can claim a credit on the TD1, but again the amount is subject to the relative’s income for the year. 

10.  Infirm Dependents 18 and over: Again, your claim in this case is calculated based upon your dependent’s income.  If your personal situation can also apply to both#8 or 9 as described above, determine which claim would be to your advantage as you cannot claim all three amounts. 

11. Transferred amounts from your Spouse/Common Law Partner: You are able to claim the TD1 exemptions from your spouse if he / she is unable to use all of theirs, which is usually because the spouse’s income is below a certain level.  You are able to get their unused age, pension, tuition, disability or child amount claims and use this amount on your own TD1. 

12.  Amounts Transferred from a Dependent: This claim relates to dependents with a disability or dependents who cannot claim all of their education amounts. 

13.  Total Claim Amount:  Add up all the amounts and provide this to your payroll department.  Your tax deduction on your pay cheques will be adjusted down if you have added anything other than the basic personal income tax amount.

 What do I need to know before filling out this form?  

One can easily see now why many employers will simply give their staff the Basic Personal Amount as there are many situations to consider.  To complete this form accurately, you will need to know information regarding your spouse’s and dependent’s incomes (estimates are sufficient) to determine your eligibility of some of these claims.  Also remember, some of these can only be claimed by one spouse – don’t double claim! 

Do I need to revisit my TD1? 

Finally, for those who remember filling out this form at one time in the past, your situation may have changed. Perhaps your kids are over 18, you have turned 65, or you no longer support a dependent or spouse.  Also note that the recent implementation of the Universal Child Care Benefit has eliminated the Child Credit you may have previously claimed. It is a good idea to review your TD1 claims occasionally to ensure that you will not be claiming more than you should.  In doing so, you can avoid an unpleasant shock of having to pay more come spring when you file your income tax return. 

For a copy of this form, please visit the CRA website at: 

http://www.cra-arc.gc.ca/E/pbg/tf/td1/td1-15e.pdf

Author:
Wendie Karlowsky
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