Tax season is here, once again. If you are a small business owner, it is time to process all of your year-end payroll documents. The last thing you want is an employee on your payroll coming to you with an incorrect T4 slip. In this article, we’ll go over what the tax form T4 is and common T4 mistakes to avoid.
What is a T4 slip?
A T4 slip, officially known as a “T4 Statement of Remuneration Paid,” is a document filed with the Canada Revenue Agency (CRA) stating all income an employer paid to an employee the previous year.
What information is reported on a T4 slip?
A T4 slip summarizes an employee’s income and withholdings from the previous year.
Income reported on a T4 slip will include:
Tips and Gratuities
Paid Vacation Time
Company-Paid Insurance and Other Benefits
When filing T4 slips for your employees, here are common T4 mistakes to avoid:
Filing an Incorrect Social Insurance Number (SIN)
A Social Insurance Number (SIN) is a unique number that allows the Government of Canada to identify each person using certain government services. It is incredibly important to check this unique identifier for accuracy.
Employers sometimes inadvertently enter incorrect SIN’s for their employees, causing the CRA to receive incorrect employee income information. In order to avoid filing incorrect SIN’s on T4 slips, verify your employees’ SIN’s when you hire them on your payroll and again at the beginning of each year. If you hire someone who does not have an SIN, you will want to enter all zeros in box 12 for that employee.
Entering Zeros in Boxes that Do Not Apply
If a box on a T4 slip does not apply to your employee, the CRA instructs employers to leave the box blank instead of entering all zeros. Note: This rule does not apply to boxes 12-Social Insurance Number, 24-Total EI Insurable Earnings, and 26-CPP/QPP Pensionable Earnings. The T4 slip instructions request you enter zeros for these three boxes if there is no number to report.
Rounding Numbers to the Nearest Dollar
As a small business owner, it is important to have your payroll reconciled to the penny. Each number reported on a T4 slip needs to be broken down in actual Canadian dollars and cents. Reporting specific numbers instead of round numbers allows the government to make sure all reported income and benefits from different revenue streams balance.
Filing After the Due Date
Make sure to file your 2022 T4 slips by February 28, 2023, as filing T4 slips late can cause serious repercussions for a small business owner. Not only can employees report you to the CRA for not giving them their T4 slips by the due date, but you could also accrue penalties and interest with the CRA for filing your T4 returns late. There is a minimum penalty of $100 for late filing, with penalties increasing daily based on the number of employees you have (for a maximum of $7,500 in penalties).
Excluding Insurance and Health/Wellness Benefits Paid by Company
Insurance benefits offered to employees are taxable to the employee, even if the company has paid 100% of the premiums. Gym and massage memberships paid for by the company need to be reported as income, as well. These are easy items to miss as they are not directly included when running each payroll.
Excluding Vehicle Allowances
Some companies pay their employees to use their personal vehicles for their job. This is a taxable benefit and needs to be reported. However, if the employee is paid per kilometer actually driven versus being paid a flat allowance, this number may not have to be included on your employee’s T4 slip as taxable income.
Excluding Commissions Paid
Box 42 requests an employee’s total employment commissions. However, what is sometimes missed by employers is that this number also needs to be included in calculating an employee’s total income in box 14.
Reporting incorrect Canada Pension Plan or Québec Pension Plan Contribution Amounts
Boxes 16 and 17 require an employer to report the total amounts of pension plan contributions he or she withheld from an employee’s paycheck. Some employers may inadvertently include the amount they contributed in this total as well, inflating the employee’s pension contribution total.
How Do I Correct a T4?
Mistakes happen. There would not be so many common T4 mistakes to avoid if everyone filed them correctly. If you have an employee come to you with an incorrect T4 slip, you will need to amend it one of two ways:
Create a new T4 slip. Write “amended” at the top and mail it with a cover letter to the CRA tax center in your region.
You can amend T4 slips electronically.
Whichever way you choose to amend incorrect T4 slips, make sure to give a copy of the amended statement to your employee so they can correctly file their taxes as soon as possible.
As a small business owner, employees on your payroll are key to helping your business run smoothly. Let’s thank them by trying to avoid these common T4 mistakes so they can report their income correctly and on time.