Why doesn’t my employee have any Federal and/or Provincial tax deducted?

There are several legitimate reasons an employee could have $0 federal and/or provincial income tax deducted from a pay cheque.

  1. Their taxable earnings were too low for that pay period. Payroll tax calculations annualize or otherwise apply prescribed formulas to the employee’s taxable remuneration. After credits are applied, the calculated income tax can be $0. CPP/QPP and EI/QPIP may still be deducted. Refer to CRA T4032 Payroll Deductions Tables.
  2. Their TD1 credits are relatively high. An employee may have claimed amounts beyond the basic personal amount on their federal or provincial/territorial TD1—for example, eligible tuition, age, disability, spouse/dependent amounts, etc. Those credits can reduce payroll withholding to zero.
  3. They claimed the TD1 “total income less than total claim amount” exemption. If the employee indicated that their expected total income for the year will be less than their total claim amount, the employer generally does not deduct income tax, subject to the applicable rules.
  4. They received a CRA authorization for reduced deductions at source. An employee can obtain CRA approval (often associated with Form T1213) to have less tax withheld because of deductions or credits that are not otherwise reflected in normal payroll calculations.
  5. The payment had little or no taxable remuneration. The cheque could consist of non-taxable reimbursements or other amounts that are not subject to income tax withholding.
  6. Pre-tax/payroll deductions reduced the amount used in the tax calculation. Certain registered pension plan contributions, union dues in applicable calculations, or other permitted deductions can reduce remuneration on which tax withholding is calculated.
  7. It was an unusual or small payment. Depending on the payment type, frequency and tax method being used, a small payment can legitimately result in no tax. Refer to CRA T4032 Payroll Deductions Tables.
  8. There is a payroll configuration/data issue. For example, an incorrect tax-exempt setting, TD1 configuration, province of employment, pay frequency, override of Applicable Period of Time in employee timesheet, taxable earning setup, or employee tax status could cause tax not to calculate when it should.

A common reason employee’s do not pay and/or do not pay enough tax is due to the employee having multiple jobs with different employers. Please refer to the TD1 Personal Tax Credits Return for more information.