If you have employees, you have to fill out a T4 slip for them, and you must give your employees these slips by the last day of February following the year you paid them. These slips detail how much you paid your employee as well as any taxes, Canada Pension Plan contributions, and Employment Insurance payments remitted on their behalf as well as some other details. When filling out these slips, be careful to avoid these common errors.
Failing to Report Insurance Benefits
If you pay life insurance, critical illness coverage, and other insurance benefits on behalf of your employees, you must report the amount you pay on their T4 slip. You should report these amounts in box 14 along with the income you paid your employee. For instance, if you paid your employee $40,000 in wages and paid $3,000 in insurance benefits, you need to note $43,000 in box 14.
Overlooking Wellness Benefits
Many employers are starting to offer wellness benefits to their employees. This includes allowances for massages, reimbursements for gym memberships, and similar expenses. Again, these are taxable benefits that should be reported in box 14. As a general rule of thumb, you only have to report benefits as taxable income if the employee is the main beneficiary and the benefits provide a direct economic benefit. As a result, if you offer services such as on-site yoga for all your employees, you typically don’t have to report that as income on their T4 slips.
Not Reporting Vacation Benefits
Sending an employee on an all-expenses-paid vacation is a great perk, but if you offer your employee this kind of bonus, you also need to report the fair market value of the vacation as income. Your employee must pay income tax on that amount, but that’s still cheaper than having to pay for a vacation on their own.
Forgetting to Prepare T2200 Forms
If you pay commissions to your employees or cover some of their vehicle expenses, you also need to remember to include those amounts as income on the T4, but that’s just the first step. In most cases, employees who earn commission or use a vehicle for work cover some of their own expenses, and they may be able to deduct some of these employment expenses on their tax returns. However, they can only claim these expenses if you fill out form T2200 (Declarations of Conditions of Employment) for them.
Omitting Saw Rental Payments for Loggers
In a lot of cases, professional loggers provide their own tools, and their employers often pay a monthly or weekly rental fee for the use of those tools. If you do that in your business, you need to remember to report those rental payments as income. In this case, you also should fill out a T2200 form for your employees. If you declare that you require them to use their own power saws and tree trimmers for work, they can deduct some of their costs.
Not Filling Out T4 Slips for Self-Employed Barbers and Drivers
If you employ barbers, hairdressers, or drivers, you need to fill out a T4 slip for them just as you do for all your other employees; however, the Canada Revenue Agency has special rules for self-employed barbers, hairdressers, and drivers and you must also fill out T4 slips for them.
As you are not paying these professionals directly, you should not report any income in box 14, but you need to remit EI and Provincial Parental Insurance Plan contributions for these employees. As a result, you need to note their EI insurable earnings in box 24 and their PPIP insurable earnings in Box 56. You also have to note the EI premiums you paid on their behalf in box 18 and the PPIP premiums paid in box 55. Finally, for barbers and hairdressers, you need to note code 83 in the other information section, and you need to note code 82 for drivers.
Neglecting T4-A Slips
Employees often get so busy filling out T4 slips that they forget about T4-A slips. If you pay pension, retirement, or annuity payments to old employees, you have to issue a T4-A slip to them. You should also use this slip for most independent contractors. For example, if you pay sales commission to independent contractors, you need to give them a T4-A slip.
Not Knowing the Difference Between T4-A and T4-NR Slips
T4-NR slips fill almost exactly the same purpose as T4-A slips, but you need to issue them to non-residents. For example, if your business pays pension income to someone who has retired in another country, they are likely no longer a Canadian resident, even if they are a citizen. As a result, they need a T4-NR slip. The “NR” stands for non-resident.
Not Turning to Technology
To make T4 slips easier to prepare, you may want to make use of technology available to you. In particular, QuickBooks Payroll helps you to track how much you pay your employees, and you can use this software to prepare your T4 slips.
Preparing T4 slips is an important part of your job as an employer. Consider consulting with an accountant or a tax professional for help. These forms can be confusing, especially if you have employees in multiple provinces or if you offer your employees a lot of benefits. However, if you take steps to avoid the errors described above, you are already heading in the right direction.