T4 forms are due February 28th! Are yours correct?
Each year, every small business that has employees must prepare T4 forms and T4 summaries. These are due by February 28th of the following year. Anybody who has had to prepare a paycheque along with all the CPP, EI, and income tax calculations knows how complicated it can be. This doesn’t even mention the implications of employer or employee portions for the CPP and EI.
At the end of the year, all those payments and calculations have to be tallied up and put into the T4. On top of that, you have the T4 summary which represents all the payroll calculations for the entire company. And then there is the balance with the government which must be verified to make sure they’ve captured every payment into your account and that every payment was paid in a timely basis.
All of this can be complicated enough. You’d think that software should be a foolproof solution, but even they have issues making sure the amounts are correct.
The CRA is also constantly evolving. In more recent years, they have become extremely efficient and diligent in checking and verifying that all amounts are correct. As such, it becomes more and more onerous to double-check every entry.
Here are some fine points, tips and warning signs to look out for when you’re preparing your T4 and payroll calculations.
- Try to make sure the amount on your T4’s are correct; if not you will face penalty for non-compliance
- The late filing penalty will kick in if the return does not reach the CRA by February 28th deadline – meaning it must be in the government’s hands by 28th, not simply mailed
- If you owe over $500 when filing the T4 and T4 Summary, the CRA will assess penalties and interest
- Possible headaches may occur later on with what is called Pension Insurance Earnings Review (PIER) if insufficient CPP & EI were remitted; these need to be filled out and responded to or it could lead to a full audit
- If an employee was hired part way through the year, there is a CPP exemption issue that needs to be considered as most software doesn’t know how to handle these situations
- Always update your payroll software as soon as possible; paycheques prepared using the older ones will throw off your balances at the end of the year; they’re updated in December and in June
- Make sure to properly account for the New Hire program that gives rebates for EI; it must be taken into income
- Make sure to have a system in place to capture payments made each period so that none are missed
- T4 balances should match with your WSIB balances as the CRA and WSIB departments are now talking to make sure they’re the same
- Companies with gross wages over $400,000 need to pay Employer Health Tax (EHT) and the Ministry is working with CRA to make sure they are not overlooked by businesses
- Other new regulations like employees over 60 who elected to collect CPP have to continue paying for CPP; when over 65, the employee can elect not to pay, and a form needs to be filed with the CRA
- Employees under 18 do not submit CPP, if it is done wrong, the CRA will not catch it; however when the T1 is filed, it should be caught by most T1 preparation software and the taxpayer will get the refund back, but the employer won’t
- The same goes for if the employer over remitted CPP or EI on behalf of employees, the T1 software will catch them to allow for refund for the taxpayer at income tax time, but not for the employer
- In December before submitting your final source deduction payment for the year, review the balance that the government has on their file for your payments; make sure it matches what you have recorded as paid; the CRA has in some cases misplaced those funds so even if you’ve done everything right, they will show it as wrong
At Accounting Plus Business Services, we handle these calculations for you. That being said, no payroll service is perfect. That’s why it’s also important to make sure that you’re working with people who knows the ins/outs and to correct the errors/omissions with as little hassle as possible. We can do that as well.
As with any situation, your circumstances or situation may require different calculations. If you have questions about your payroll, please do not hesitate to contact a payroll specialist you can trust or contact us today.
We can be reached at (416) 495-1098 or firstname.lastname@example.org