Short of Cash - Look To Payroll Department For A “Raise”

Short of cash after a long summer off? Take a second look at your tax withholdings and quarterly tax instalment requirements (the next one coming up September 15). Many employees have deductions or credits available to them that are not reflected on the TD1 form; a review could create new cash. Retired? Remember that often pensioners, business owners and investors overpay instalments needlessly, too. If this is just the right time to invest after-tax dollars and the wrong time to be pulling capital out of the marketplace to make unnecessary tax prepayments, you'll want to review the amount you're paying in tax on income.

Employees: Where an employee has additional deductions or credits available this year, be sure to have the employer take these into account when calculating the tax to be withheld by redoing the TD1 Tax Credit Return. Reducing tax withheld at source enhances the employee's cash flow ñ amounts that would otherwise be received as a lump-sum refund when the tax return. Why wait for spring when the money could be working for you now? Convert overpaid taxes into an increase in the take-home paycheque received every pay period. If you find it unacceptable that the average tax refund was $1,400 per taxpayer in 2009, when that money could be working for you or your clients instead, act now.

Some deductions can be taken into account by the employer without having to obtain the consent of CRA. Others require a pre-authorization from CRA before the employer can take them into account and reduce withholdings.

An employee may have deductions or credits available other than those described above which will reduce the amount of tax he or she ultimately has to pay when the tax return is filed. The employee has the right to request that the employer take these into account in calculating the amount of income tax to withhold from net pay. However, the employee must first obtain the written permission of the Canada Revenue Agency.

Permission is requested by filling a Form T1213 with the CRA on which the employee identifies the employer and the dollar amounts of deductions or credits that will be available to reduce the amount of tax. If the CRA is in agreement, an authorization will be issued to the employer.

Excerpted from Advanced Payroll for Professionals, one of the courses that comprise the Bookkeeping Services Specialist program.