Repayment in Another Year
If your employee doesn’t repay until the next tax year or if you’ve already submitted all your payroll for the year, the employee should repay the gross amount of the overpayment. In these cases, you should amend the employee’s T4 slip from the year the overpayment occurred. To adjust the slip, subtract the repayment from the employment income in box 14, and adjust insurable earnings and pensionable earnings to match. Don’t change the CPP contributions or EI premiums.
If your employees deserve refunds for overpayment, the CRA rectifies that issue with the next tax return. As an employer, you can request to get your CPP and EI matching amounts back; just use Form PD 24, Application for a Refund of Over-deducted CPP Contributions or EI Premiums. Salary overpayments are almost inevitable when you have employees. They are relatively straightforward to deal with, but in some cases, these mistakes can be costly. As an employer, you may want to understand common payroll mistakes and how to avoid them.
In most cases, over payment problems can be resolved when you and your employee file your taxes. You should always include the over payment amount, along with Canada Pension Plan contributions and Employment Insurance deductions, on the employee’s T4 slip even if he or she doesn’t repay you. Should your employee repay you, though, give the person a letter saying he or she repaid you, and note the reason for the over payment.
It is always important to take preventive action by using an automated payroll system. QuickBooks provides an easy way to keep your small business payroll in order. With over 5.6 million users, QuickBooks helps small business owners thrive.