How to calculate payroll taxes
Calculating payroll involves variables that are unique to each employee’s income and circumstances.
That being said, payroll tax withholdings can be calculated using this simple formula:
payroll tax = federal income tax + provincial income tax + CPP + EI
To calculate payroll tax withholdings manually, you will need to determine the amount owed for each individual payroll deduction type. Once you have determined the amount of CPP, EI, and federal and provincial income taxes to withhold, the calculation to determine payroll taxes becomes relatively straightforward.
The steps to calculate payroll taxes are:
- Determine gross pay: Calculate the total earnings, including wages, overtime, and bonuses.
- Apply CRA formulas: Deduct federal and provincial taxes using the CRA’s payroll deduction tables or other automated tools.
- Add employer contributions: Include the employer portion for CPP and EI.
- Factor in additional provincial requirements: Include any province-specific payroll taxes or premiums.
Automating this process with payroll tools can save time and reduce errors.