The federal and provincial TD1-Personal Tax Credits Return forms determine the amount of income tax to deduct from employment income or other income, such as pensions. The filing of TD1 Claims can cause anxiety within the payroll department, but it doesn’t need to. Here’s what you need to know:
- Employers must collect a TD1 form from all new employees.
- Individuals who claim more than the basic personal tax credit should complete both a federal and a provincial form.
- If a TD1 is not received, employers may assume the basic personal amount when calculating tax withholding.
- The employer is not responsible for advising employees which TD1 credit amounts they can claim.
A current TD1 form helps you determine the correct amount of income tax to withhold from an employee’s earnings. This can prevent underpayment or overpayment of taxes, which can lead to unexpected tax bills or smaller refunds when employees file their tax returns. Don’t forget that there is both a Federal and a Provincial TD1 form to complete.
Consider These Best Practices
- Employees only claiming the Basic amount do not have to submit a TD1 each year.
- Though not mandatory, asking employees who submit non-Basic TD1 claims to resubmit each year is recommended.
- Employees should consider completing a new form each year if they:
- are a higher earner and claim a lower BPA value
- are entitled to other credits (e.g., spouse or common-law partner)
- had claimed an exemption from tax in the previous year which no longer applies
- had requested additional voluntary income tax deductions and wish to change this amount
- an employee should also submit a new TD1 form at any time during the tax year if there is a change in their situation.
- Resetting all employees’ TD1 claims to Basic each year and then resetting the amount based on this year’s TD1 form is also best practice.
What About Reductions in Income Tax?
Employees entitled to tax credits and deductions that don’t appear on the TD1 should complete Form T1213 Request to Reduce Tax Deductions at Source so that the CRA can authorize you to reduce the withheld income tax. A letter of authority from the CRA will indicate the tax year(s) for which the reduction of income has been approved. An employee will likely need to reapply for income tax reductions for additional years.
Sample Email
Here is a simple email template you can send to your employees to encourage them to review their TD1 forms:
Subject: Important: Please Review and Update Your TD1 Forms for 2025
Dear Staff,
As we approach the new year, we want to remind everyone about the importance of reviewing and updating your TD1 forms. The TD1 forms, which include the Federal and Provincial Personal Tax Credits Return, are essential in determining the correct amount of income tax to be deducted from your pay.
Why is it important to review and update your TD1 forms?
- Ensuring your TD1 forms are up to date helps us withhold the correct amount of income tax from your earnings. This can prevent issues such as underpayment or overpayment of taxes, which could lead to unexpected tax bills or smaller refunds when you file your tax return.
- If you’ve experienced significant life changes during this tax year (such as your spouse or common-law partner starting or ending employment), your eligible tax credits may have changed. Updating your TD1 forms ensures that your personal circumstances are accurately reflected.
- Keeping your TD1 forms current allows you to take full advantage of eligible tax credits and deductions, which optimizes your tax situation and may even increase your net income.
What do you need to do?
- Take a moment to review your current TD1 forms to ensure all information is accurate and current.
- If there have been any changes in your personal circumstances, or if you wish to adjust your tax credits, please complete new TD1 forms.
- Once completed, submit the updated forms to the payroll department by [deadline]. This will allow us to make the necessary adjustments on time.
If you have any questions, please do not hesitate to contact the payroll team. Thank you for your prompt attention to this important matter.
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