TD1’s:  2015 Family Take Home Pay Drops

New Income Tax Estimator Can Help

Last week CRA issued the 2015 TD1 Personal Tax Credit Return and the corresponding provincial forms. 

Unfortunately, these forms do not integrate the Family Tax Cut provisions in them and that will be disappointing to Canadian families with minor children.

While indexing of tax brackets and most of the personal amounts  will help reduce tax withholding for most taxpayers, unfortunately, the elimination of the Amount for Children under 18 (sometimes called the Child Tax Credit) increases tax withholdings for taxpayers with children at home.  Recall this provision was removed with the introduction of the Family Tax Cuts, which have not been integrated into the TD1 forms and therefore will not increase take home pay.  Families will have to wait until they file their tax returns to reap these rewards.

Employees who earn more than $49,000 will also see a cut in their take home pay in January as their deductions for Employment Insurance premiums (and for CPP contributions if they earn more than $52,500) are once again deducted from their paycheques.  Higher earners typically get a holiday from these premiums in the latter part of the year, after the maximum income levels are reached.

December is a good time for bookkeepers and tax advisors and clients to get together to review the TD1 forms.   To maximize take home pay starting in 2015, maximizing claims on the TD1 return is critical.  The common practice of “claiming single” results in a lower take home pay throughout the year.  While this is a “forced savings method” for some, it makes little investment sense, as it is equivalent to making an interest-free loan to CRA all year long for the amount of the refund.

A wiser use of that money would be to pay down consumer debt each pay period with the extra take home pay.  If clients are already debt free, investing into a Tax Free Savings account each pay period to increase family wealth rather than the government’s, is wiser.

If taxpayers are making regular RRSP contributions, claiming child care expenses, paying tax-deductible support, claiming employment expenses, paying investment carrying charges, making regular charitable donations, or claiming rental losses take home pay can be further increased by filing Form T1213 Request to Reduce Tax Deductions at Source for Year(s) ______ with CRA.  Once this request is approved, the payroll department can give credit for these additional deductions and deduct less income tax from each pay.

Additional Education Resource: Knowledge Bureau has Canada's only income tax estimator that incorporates the Family Tax Cut Provisions to help you calculate the effects of the tax changes on your pocketbook. Click here to buy.