Simply put, a TD1, Personal Tax Credits Return, is a form that is necessary for calculating how much tax should be withheld from payments. If you are an employer who has to run payroll in Canada or a pension payer, you most likely will be asked to fill this form out to figure out how much tax should be remitted from any payouts to send back to the Canada Revenue Agency (CRA).
Any person who has held any legal employment, from jobs at restaurants to a run-of-the-mill 9-5 office job, will probably have already signed and filled out one of these forms when a company has onboarded them.
Understanding the Form TD1
Let’s dig a bit deeper.
The purpose of this form is to collect the appropriate tax amount from each working individual. The TD1 enables the CRA to accurately estimate the amount of tax a person will owe at the end of a fiscal year, and incrementally pull it from each paycheque. This takes the burden away from the individual to set aside and forecast how much tax they will owe and ultimately have to hand over to the CRA.
By filling out a TD1, employees give the government the information it needs on salary and the applicable tax credits. The CRA takes this information and roughly calculates what percentage of your overall income is owing in tax.
Depending on which tax credits can be applied, the tax amount can either be higher or lower. If there are no applicable tax credits that a person may qualify for (and many individuals do not), then the amount of tax taken monthly from their pay will be based on the marginal tax rate of an individual’s salary.
Since the monthly deductions are based on estimations, the CRA may collect too much tax over the year and refund any excess. Upon assessment of a filed tax return, the CRA will refund the appropriate amount.
Who should fill out a TD1
Wondering who should fill a TD1 form? Any individual who is:
- Starting at a new job
- Has had their income and employment situation drastically shift and needs to update existing form information
- Interested in increasing how much tax is being deducted at the source
- Beginning to receive pension payouts
- Looking to claim a deduction for living in a prescribed zone
Employees are not required to fill out a new TD1 form each year unless there has been a change to their tax credit amounts. If an employee has to change their tax credit amounts, they must complete and give their employer a new form within seven days of said change.
Filling out a TD1 form
All new employees must fill out two TD1 forms upon starting a new job. It is usually included in onboarding documents. A new hire must complete both the federal TD1 and the provincial TD1 if more than the basic personal amount is claimed. In Quebec specifically, employees must use the TD1 (federal) and the provincial Form TP1015.3-V, Source Deductions Return.
To fill the forms out, employees must follow the instructions on each line of both the federal and provincial forms. Then, each of the amounts on the lines is added together and totaled. This sum is entered into the last line of page 1 on the TD1 form that says “Total Claim Amount.”
Specifically, for the federal TD1 form, employees must add lines 1-12 together, and the total amount entered into line 13. For the provincial/territorial TD1 form, the number of lines will vary depending on whether you are located in a province or territory. Both the federal and provincial/territorial governments have worksheets online that aid employees in calculating their claim amounts.
The total claim amount entered on these forms is used to determine the amount of income tax deducted per pay period from your employees’ gross pay amounts.
Paper TD1 or Electronic?
Beginning on January 20, 2020, employers are no longer expected to provide paper TD1 forms to their employees. Employers are now expected to equip all new employees with this web page link to fill it out on their own accord.
Filling out the TD1 form is simple and straightforward. By accounting for and estimating the potential tax credits available, you can gain a picture of what you will owe.
Here are examples of some credits employees can claim:
- The basic personal exemption gets up to $13,229
- The disability tax credit receives up to $8,576
- Pension amount, up to $2,000
- Age amount (if you are over 65) gets up to $7,276.00
- Caregiver for infirm children can claim up to $2,273 per child
- Caregiver for an infirm spouse or common-law partner, you can claim up to $12,298.00
- Caregiver for any infirm dependents that are over the age of 18, get up to $7,276
- Tuition fees if you are in school.
You can access all the Government of Canada’s TD1 forms here.