T4032 is a tax document that specifies how much an employer must withhold from an employee's pay for income tax purposes, Canada Pension Plan contributions, and Employment Insurance premiums. The Canada Revenue Agency (CRA) updates and publishes the payroll deduction tables annually to ensure employers make adequate deductions based on current tax laws and thresholds.
Payroll deduction tables: General information and how to use T4032 tables
The payroll deduction tables help employers calculate federal, provincial (excluding Quebec), territorial income tax, Canada Pension Plan (PPC) contributions, and Employment Insurance premium rates within a set pay period. A pay period refers to the frequency employees receive their earnings and other remuneration.
In addition to the T4032 tax tables—which cover common (regular) pay periods, such as weekly, biweekly, and monthly—employers can use payroll deductions supplementary tables, such as T4008, to calculate payroll tax deductions for irregular pay periods, such as daily or occasional payments.
What to consider when using T4032 tables
An employer is required to consider an income type (salary, wage, commissions) and establish the employees' province (or territory) of employment (POE) to ensure the correct use of T4032 tables and compliance with federal and provincial laws.
The POE depends on:
- The employee's residency status
- The employer's establishment where the employee reports for work
For income tax, CPP, and EI purposes, the employer's establishment is any Canadian location they rent or own, where (one or more) employees report to work and from where (one or more) are paid.
The nature of the business can influence whether an employer's establishment is temporary or permanent. For instance, a construction company can have a mobile office, making the POE wherever that office is.
A home office is usually not considered an employer's establishment for full-time remote workers. Instead, employees are supposed to report to an employer's establishment they are reasonably "connected" to.
Key components of T4032 payroll deductions tables
T4032 tables provide detailed information regarding:
- Income tax deductions
- Pension income contribution rates
- Employment insurance premiums
When income tax, EI, and CPP contributions are deducted from an employee's gross income, the remaining amount is the net income or take-home pay.
Income tax deduction tables
When determining the amount of income tax deductions, employers must consider:
- Federal income tax regulations
- Provincial income tax requirements
Tables are organized to help employers apply adequate deduction rates based on employees' province or territory of employment (POE) and pay frequency (weekly, biweekly, monthly).
Federal income tax takes into account the personal amount—a set dollar amount designed to cover basic expenses. The personal amount is tax-free, and when subtracted from total taxable income, it can lower the income on which tax is calculated. As a non-refundable tax credit, it can reduce the tax owed but will not provide a refund if it exceeds the total taxable income.
Let's say a total taxable income is $45,000, while the personal amount is $16,000.
Subtract the personal amount from total taxable income:
$45,000 - $16,000 = $29,000
Now, the taxable income is $29,000.
The income tax rate is 10%
Calculate the tax owed:
$29,000 x 0,10 = $2,900.
Given that the personal amount exceeds the tax owed, and as a non-refundable tax credit, it doesn't result in a refund.
Another scenario could be:
Total taxable income is $11,000, and the personal amount is $16,000.
Subtract the personal amount from total taxable income:
$11,000 - $16,000 = - $5,000
The income cannot have a negative value, and it will be 0 in this situation.
The tax rate is 10%
As a result, the income tax rate calculation will be:
0 x .10 = 0
When the personal amount exceeds the total taxable income, the person is not required to pay federal tax.
For provincial tax requirements, employers can check the Current year T4032 Payroll deductions tables effective January 1, 2024, on Canada.ca.
Canada Pension Plan (CPP) contributions
Both employers and employees contribute to the CPP. The employer contribution must match the employee contribution, calculated as a percentage of employees' pensionable earnings. Maximum pensionable earnings for 2024 that are subject to CPP contributions are $68,500.
The T4032 table helps employers determine how much everyone must contribute. Employers should consult section B(i) to calculate CPP contributions for pensionable incomes up to $68,500. As of 2024, employers must use section B(ii) to calculate additional PPC contributions, referred to as CPP2 contributions, for pensionable incomes between $68,500 and $73,200.
It is critical to note that different contribution rates apply to self-employed individuals. The 2024 self-employed CPP2 contribution rate will be 8%, and the maximum self-employed contribution will be $376.
Employment insurance premiums
EI (Employment Insurance) premiums are mandatory deductions that fund EI programs. These programs provide maternity, paternal, and sick benefits and temporary financial support to eligible employees who have lost their jobs through no fault of their own.
Both employees and employers contribute to the EI. Employee contributions are a percentage of their insurable earnings. An employer's contribution rate is usually higher than that of employees.
The maximum insurable earnings for 2024 are $63,200. From there, the maximum employee contribution is $834.24, while the maximum employer contribution is $1,167.94, or 1.4 times the employee contribution. Earnings above this threshold are not subject to EI deductions.
How to effectively use the Payroll Deductions Online Calculator
Employers can use the Payroll Deductions Online Calculator (PDOC) to calculate federal, provincial (except for Quebec), and territorial payroll deductions. The calculations' reliability depends on the accuracy of the information provided.
In Quebec, employers can use the WebRAS program from Revenu Quebec to calculate provincial payroll deductions.
Accuracy-related risks when PDOC is used can be minimized if a user:
- Clears their internet browser cache
- Updates their operating system (OS) and browser
- Creates their own statements of earnings
Other methods to calculate the required CPP, EI, and income tax deductions are here.
Importance of staying updated with T4032
The Canada Revenue Agency updates the payroll deduction tables yearly. Employers are required to stay informed to ensure legal compliance. Failure to use updated tables could expose employers to several risks:
- Liability for owed amounts: An employer is responsible for missed deductions and may be required to pay their own and an employee's portion of unpaid EI, CPP contributions, and income tax.
- Interest charges: If an employer misses deductions, the CRA may charge interest on unpaid amounts from the day the deductions should have been remitted.
- Penalties: Failure to deduct income tax and EI and CPP contributions can result in fines of up to 10% of the amount due. Repeated or intentional non-compliance can result in higher penalties.
- Additional reviews: Employers who persistently fail to remit required deductions may face additional CRA reviews, which could lead to further investigations.
- Legal Consequences: Non-compliance could provoke legal action by the CRA, especially in cases of willful negligence or fraud.
FAQs about T4032
What is the purpose of the T4032 tax tables?
Employers use the T4032 payroll deductions tables to calculate territorial, provincial, and federal income tax that must be withheld from employees' earnings. They are also used to determine CPP and EI deductions, ensuring employers meet tax requirements based on the POE (employee province or territory of employment) and pay frequency.
Where can I find the latest version of the T4032 tax tables?
The CRA publishes updated T4032 tables before the start of each calendar year. Employers are advised to check for updates regularly to ensure they use the most relevant information for payroll calculations.
Rippling and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.