As employers, we often walk a tightrope between trying to not fall into questions-we-don’t-know-the-answer-to on one side, and headaches or low team morale on the other.
But what’s a great way to dip directly into a “low morale and headache” storm – Not having your team fill out TD1 forms.
This could result in your employees owing hundreds of dollars come tax time, and then looking to you, as their employer, for answers.
This post will give you a 2-Step Action Plan to ensure you stay balanced on your “employer obligation tightrope” – by ensuring your team have the resources they need to avoid tax liabilities, as well as maximize their tax credit timing.
What are TD1 Forms?
TD1 forms allow employees to dictate the amount of income tax that will be deducted from their paycheque based on the tax credits and deductions they believe they will receive. There are federal and provincial/territorial TD1 forms and worksheets. Both need to be filled out.
The Canadian tax system is based on self assessment and reporting. This means the 16-year old you just hired is responsible for knowing that in order to avoid a tax liability come tax season, they must inform the government when they take a second job over the summer that may bump up their taxable income for the year.
The TD1’s usefulness is not limited only to the above scenario. But it’s the one that most often trips up the employees we serve.
Essentially, TD1 forms need to be filled out when an employee starts a new job, or when there is a change in an employee’s situation.
These changes to circumstance include (but are not limited to) the following:
- They’re a new employee,
- They’ve had a new baby,
- They’re child starts post-secondary school,
- They’ve turned 65,
- They’ve had an elderly or disabled parent or relative move in,
- They want to claim the deduction for living in a prescribed zone,
- They want to increase the amount of tax deducted at source
above the basic personal amount (e.g. when they’ve taken a second job).
So, What Do I Need To Do?
The beginning of the new tax year is a great time to check in with employees to see if their situation has changed and to ensure their TD1 forms are accurate and up to date.
But as we know, not many employers have TD1 forms already filled out by all of their employees – most often because employers themselves don’t understand this useful form.
The following is an Action Plan that will address this on 2 fronts.
1) Ensure Current Employees Have Filled Out Their TD1 Forms
This can be done by sending out an email to your current team. Do not put it off! Do this now so it doesn’t get forgotten. We’ve drafted an email template that you can edit to suit your needs here:
Ensure you attach to the email BOTH the federal TD1 form and the appropriate provincial or territorial TD1 form which can be found here.
As with any human, employees often put off “paper work” or “administrative task” that are on their to-do list. Do your part as their employer: give them a deadline of one month, then send out periodic reminders.
After your initial email, send out reminders every week during the one month deadline.
After this initial push, we recommend that you repeat this process at least once per year in December (leading up to the next tax year).
ACTION PLAN: Send An Email To Your Team Mandating They Fill Out And Return TD1 Forms, Then Follow Up Every Week For The Next Month.
2) Ensure TD1 Forms Are Part Of Your On-Boarding Process
Attach both the federal TD1 form and the appropriate provincial or territorial TD1 form to the welcome email that you send to your team. If you use WorkSolute for payroll, this process is done for you. The TD1’s are held on file, and the appropriate tax is deducted from each employee without you having to think about it.
With this best practice in place, all you then need to do is check in with your employees at least once per year (we suggest in December).
ACTION PLAN: Send TD1 Forms To All New Employees, Along With An Explanation Of Why They Are Important. Or Better Yet, Put This On Autopilot By Using WorkSolute For Your Payroll.
Ensuring your team is aware of, and has access to, TD1 forms is an easy step you can take to make sure you’re doing your part as their employer. This helps them navigate their income tax obligations and avoids needless angst.
Even though it takes some time, it makes solid business sense as it reduces the administrative burden at tax time that comes with fielding questions from distraught employees. And also contributes to your overall happy and productive team, knowing that their employer cares and takes steps to ensure their needs are met.
Happy tax season everyone!
Disclaimer: TD1 forms can be filled out for reasons beyond those outlined in this article. However for our purposes, we are dealing only with those most relevant to employers in high-turnover industries. For more information on other applications of TD1 forms, visit the Government of Canada website.
Do you have any TD1 horror stories? What did we miss? Was this helpful? Let us know if you have any questions, and what you want to hear about next!