A Guide to Payroll Taxes for Alberta Employers

As an employer in Alberta, comprehending and fulfilling your payroll tax obligations is crucial for running a compliant and successful business. Payroll taxes include the Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and income tax withholdings. These deductions must be accurately calculated, withheld from employees’ pay, and remitted to the Canada Revenue Agency (CRA) on time. This guide provides a comprehensive overview of employer responsibilities regarding CPP, EI, and income tax withholdings, along with a practical compliance checklist to help you meet your obligations.

Employer Obligations for CPP, EI, and Income Tax Withholdings

1. Canada Pension Plan (CPP) Contributions

Overview

• The CPP is a mandatory pension plan for employed Canadians aged 18 to 70, excluding Quebec residents who contribute to the Quebec Pension Plan (QPP).
• Both employers and employees contribute to the CPP.
• Contributions are based on the employee’s pensionable earnings.

Employer Responsibilities

• Deduct Employee Contributions: Calculate and deduct the employee’s portion of CPP contributions from their pensionable earnings.
• Match Contributions: Contribute an equal amount as the employer.
• Remit Contributions: Send both the employee and employer portions to the CRA by the required deadline.
• Report on T4 Slips: At year-end, report the total CPP contributions on the employee’s T4 slip.

Calculating CPP Contributions

• Contribution Rate: For 2023, the CPP contribution rate is 5.95% for both employees and employers.
• Year’s Maximum Pensionable Earnings (YMPE): The YMPE for 2023 is $66,600.
• Basic Exemption Amount: $3,500 annually.
• Maximum Contribution: The maximum employer and employee contribution for 2023 is $3,754.45 each.

Formula

1. Calculate Pensionable Earnings:Pensionable Earnings = Gross Earnings – Non-Pensionable Earnings
2. Determine Contributory Earnings:Contributory Earnings = Pensionable Earnings – Basic Exemption ($3,500 annually)
3. Calculate CPP Contribution:CPP Contribution = Contributory Earnings × Contribution Rate (5.95%)

Example

• Employee’s Gross Earnings: $5,000 per month
• Pensionable Earnings: $5,000 (assuming all earnings are pensionable)
• Contributory Earnings:Contributory Earnings = $5,000 – ($3,500 ÷ 12 months)
  Contributory Earnings = $5,000 – $291.67
  Contributory Earnings = $4,708.33
• CPP Contribution per Month:CPP Contribution = $4,708.33 × 5.95%
  CPP Contribution = $280.17
• Employer and Employee Each Contribute: $280.17 per month

2. Employment Insurance (EI) Premiums

Overview

• EI provides temporary income support to individuals who lose their jobs or are unable to work due to specific circumstances.
• Both employers and employees contribute to EI.
• The employer’s contribution is 1.4 times the employee’s contribution.

Employer Responsibilities

• Deduct Employee Premiums: Calculate and deduct the employee’s portion of EI premiums from their insurable earnings.
• Pay Employer Premiums: Calculate and remit the employer’s portion.
• Remit Premiums: Send both the employee and employer portions to the CRA by the required deadline.
• Report on T4 Slips: At year-end, report the total EI premiums on the employee’s T4 slip.

Calculating EI Premiums

• Employee Premium Rate: For 2023, the employee EI premium rate is 1.63% in Alberta.
• Employer Premium Rate: Employer pays 2.282% (which is 1.4 times the employee rate).
• Maximum Insurable Earnings (MIE): The MIE for 2023 is $61,500.
• Maximum Premiums:
  • Employee: Maximum annual premium is $1,002.45.
  • Employer: Maximum annual premium per employee is $1,403.43.

Formula

1. Calculate Insurable Earnings:Insurable Earnings = Gross Earnings – Non-Insurable Earnings
2. Calculate Employee EI Premium:Employee EI Premium = Insurable Earnings × Employee Premium Rate (1.63%)
3. Calculate Employer EI Premium:Employer EI Premium = Employee EI Premium × 1.4

Example

• Employee’s Gross Earnings: $5,000 per month
• Insurable Earnings: $5,000 (assuming all earnings are insurable)
• Employee EI Premium per Month:Employee EI Premium = $5,000 × 1.63%
  Employee EI Premium = $81.50
• Employer EI Premium per Month:Employer EI Premium = $81.50 × 1.4
  Employer EI Premium = $114.10

3. Income Tax Withholdings

Overview

• Employers are required to deduct income tax from employees’ remuneration based on federal and provincial tax rates.
• The amount withheld depends on the employee’s total taxable income and applicable personal tax credits.

Employer Responsibilities

• Calculate Deductions: Use the CRA’s payroll deduction tables or online calculators to determine the correct amount of income tax to withhold.
• Consider TD1 Forms: Employees complete federal and provincial TD1 forms to determine personal tax credits.
• Remit Withholdings: Remit the deducted income tax to the CRA along with CPP and EI contributions.
• Report on T4 Slips: Report total income tax deducted on the employee’s T4 slip.

Calculating Income Tax Deductions

1. Obtain TD1 Forms:
   • Use the information provided by the employee on the federal and Alberta TD1 forms to determine claim codes.
2. Determine Taxable Income:
   • Taxable Income = Gross Earnings – (CPP Contribution + EI Premium)
3. Apply Payroll Deductions Tables:
   • Use the CRA’s payroll deductions online calculator or the latest payroll deductions tables to find the amount of income tax to deduct based on the employee’s taxable income and claim code.

Example

• Employee’s Gross Earnings: $5,000 per month
• CPP Contribution: $280.17 (from previous example)
• EI Premium: $81.50 (from previous example)
• Taxable Income:Taxable Income = $5,000 – ($280.17 + $81.50)
  Taxable Income = $5,000 – $361.67
  Taxable Income = $4,638.33
• Using Claim Code: Assume the employee has a basic personal amount (Claim Code 1).
• Calculate Income Tax Withholding:
  • Use the CRA’s payroll deductions online calculator for Alberta with the taxable income of $4,638.33 and Claim Code 1.
  • The calculator will provide the federal and provincial income tax amounts to withhold.

Remittance and Reporting

Remittance Schedules

• Regular Remitters: Remit by the 15th of the month following the month in which the deductions were made.
• Accelerated Remitters: If your average monthly withholdings exceed certain thresholds, remittances may be due semi-monthly or more frequently.
• Quarterly Remitters: Eligible if your average monthly withholdings are less than $1,000 and you meet specific criteria.

Year-End Reporting

• T4 Slips: Provide T4 slips to employees by the last day of February following the calendar year.
• T4 Summary: Submit the T4 Summary and copies of all T4 slips to the CRA by the same deadline.
• Record of Employment (ROE): Issue ROEs when an employee experiences an interruption of earnings.

Checklist for Compliance

1. Business Registration

• Register your business with the CRA to obtain a payroll program account number.

2. Employee Documentation

• Obtain each employee’s Social Insurance Number (SIN) and verify it.
• Have employees complete federal and provincial TD1 forms.
• Update TD1 forms if an employee’s personal tax credit situation changes.

3. Calculating Deductions

• Use the latest CRA payroll deduction tables or online calculators.
• Accurately calculate CPP contributions for each employee.
• Accurately calculate EI premiums for each employee.
• Determine the correct amount of income tax to withhold based on TD1 forms and taxable income.

4. Payroll Records

• Maintain detailed payroll records for each employee, including:
  • Personal information (name, address, SIN)
  • Dates of employment
  • Gross earnings and hours worked
  • Deductions (CPP, EI, income tax)
  • Net pay
  • Benefits and allowances
• Keep records for at least six years as required by the CRA.

5. Remittances

• Know your remittance schedule (regular, accelerated, or quarterly).
• Remit all payroll deductions (CPP, EI, income tax) by the due date.
• Use the correct remittance forms or electronic methods.

6. Year-End Duties

• Prepare and distribute T4 slips to employees by the last day of February.
• Submit T4 Summary and T4 slips to the CRA by the deadline.
• Reconcile all payroll amounts for the year to ensure accuracy.

7. Record of Employment (ROE)

• Issue ROEs within the required time frame when an employee has an interruption of earnings.
• Submit ROEs electronically through the ROE Web service or provide paper copies.

8. Benefits and Allowances

• Determine if any benefits or allowances provided to employees are taxable.
• Calculate and include the value of taxable benefits in the employee’s income.
• Deduct CPP contributions and income tax on the value of taxable benefits; EI premiums may also apply.

9. Stay Informed

• Keep up to date with changes in payroll legislation and rates.
• Regularly review CRA updates and adjust payroll processes accordingly.

10. Professional Assistance

• Consider consulting with a payroll professional or accountant to ensure compliance.
• Utilize payroll software that is updated regularly to reflect current legislation.

Penalties for Non-Compliance

• Failure to Deduct: Penalties may apply if you fail to deduct the required CPP, EI, or income tax amounts.
• Late Remittances: Interest and penalties are charged on late or insufficient remittances.
• Inaccurate Reporting: Penalties for failing to file T4 slips and summaries accurately and on time.
• Record Keeping: Inadequate record-keeping can lead to penalties and challenges during audits.

Conclusion

Meeting your payroll tax obligations is essential to maintaining the integrity and reputation of your business. Understanding the requirements for CPP, EI, and income tax withholdings ensures compliance with federal regulations and avoids costly penalties. By following the compliance checklist and staying informed about legislative changes, Alberta employers can effectively manage their payroll responsibilities.

How Bomcas Canada Accounting Firm Can Help

Navigating the complexities of payroll taxes can be time-consuming and challenging. At Bomcas Canada Accounting Firm, we offer comprehensive payroll services tailored to meet the needs of Alberta employers.

• Payroll Processing: We handle all aspects of payroll calculation, including deductions for CPP, EI, and income tax.
• Remittance Management: Ensure timely and accurate remittances to the CRA.
• Year-End Reporting: Preparation and submission of T4 slips, T4 summaries, and ROEs.
• Compliance Assurance: Stay up to date with the latest payroll legislation and rates.
• Customized Solutions: Whether you have a small team or a growing workforce, we provide services that scale with your business.
• Expert Advice: Our experienced professionals offer guidance on payroll best practices and tax optimization strategies.

Contact Us Today

Let us simplify your payroll processes so you can focus on growing your business.

• Phone: 780-667-5250
• Fax: 780-851-2520
• Email: info@bomcas.ca
• Website: https://bomcas.ca

At Bomcas Canada, we’re dedicated to supporting Alberta employers with reliable and efficient payroll and accounting services.