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What is a TD1 tax form?

The TD1 Personal Tax Credits Return is used to calculate the amount of income tax that will be deducted or withheld from your employment or pension income. It is called a personal tax credit return and personal tax credits (Non-Refundable Tax Credits) are taken into consideration when determining your tax withholding calculations.

Simply put, a TD1, Personal Tax Credits Return, is a form that is necessary for calculating how much tax should be withheld from payments. If you are an employer who must run payroll in Canada or a pension payer, you most likely will be asked to fill this form out to figure out how much tax should be remitted from any payouts to send back to the Canada Revenue Agency (CRA). 

Any person who has held any legal employment, from jobs at restaurants to a run-of-the-mill 9-5 office job, will probably have already signed and filled out one of these forms when a company has onboarded them.

The governments created the TD1 form so it would be able to collect the appropriate amount of tax from you on a regular basis.

It’s easier for the government to estimate the amount of tax you will owe at the end of the year and take it incrementally from each pay cheque, instead of trusting you to set aside the correct amount of money and hand it over.

The goal is to gather enough information about your salary, along with the tax credits you will be using so that it can roughly calculate the percentage of your income that you will owe in tax at the end of the year. Obviously, the more applicable tax credits, the less tax will be taken from your pay cheque and the more money you’ll have to live on. If you have no applicable tax credits, and many don’t, then the amount of tax taken will be based on the marginal tax rate of your salary. If it turns out that it collected too much tax, then it will refund any excess. If it collected too little tax, then you will owe some. The exact amount is calculated when you do your tax return.

Understanding the Form TD1 

Let’s dig a bit deeper. 

The purpose of this form is to collect the appropriate tax amount from each working individual. The TD1 enables the CRA to accurately estimate the amount of tax a person will owe at the end of a fiscal year, and incrementally pull it from each pay cheque. This takes the burden away from the individual to set aside and forecast how much tax they will owe and ultimately must hand over to the CRA. 

By filling out a TD1, employees give the government the information it needs on salary and the applicable tax credits. The CRA takes this information and roughly calculates what percentage of your overall income is owing in tax. 

Depending on which tax credits can be applied, the tax amount can either be higher or lower. If there are no applicable tax credits that a person may qualify for (and many individuals do not), then the amount of tax taken monthly from their pay will be based on the marginal tax rate of an individual’s salary.

Since the monthly deductions are based on estimations, the CRA may collect too much tax over the year and refund any excess. Upon assessment of a filed tax return, the CRA will refund the appropriate amount. 

Who should fill out a TD1 Form?

Wondering who should fill a TD1 form? Any individual who is: 

  1. Starting at a new job
  2. Has had their income and employment situation drastically shift and needs to update existing form information 
  3. Interested in increasing how much tax is being deducted at the source
  4. Beginning to receive pension payouts
  5. Looking to claim a deduction for living in a prescribed zone   

Employees are not required to fill out a new TD1 form each year unless there has been a change to their tax credit amounts. If an employee has to change their tax credit amounts, they must complete and give their employer a new form within seven days of said change.

Filling out a TD1 form

All new employees must fill out two TD1 forms upon starting a new job. It is usually included in onboarding documents. A new hire must complete both the federal TD1 and the provincial TD1 if more than the basic personal amount is claimed.  In Quebec specifically, employees must use the TD1 (federal) and the provincial Form TP1015.3-V, Source Deductions Return.

To fill the forms out, employees must follow the instructions on each line of both the federal and provincial forms. Then, each of the amounts on the lines is added together and totaled. This sum is entered into the last line of page 1 on the TD1 form that says, “Total Claim Amount.”

Specifically, for the federal TD1 form, employees must add lines 1-12 together, and the total amount entered line 13. For the provincial/territorial TD1 form, the number of lines will vary depending on whether you are in a province or territory. Both the federal and provincial/territorial governments have worksheets online that aid employees in calculating their claim amounts. 

The total claim amount entered on these forms is used to determine the amount of income tax deducted per pay period from your employees’ gross pay amounts. 

Paper TD1 or Electronic? 

Beginning on January 20, 2020, employers are no longer expected to provide paper TD1 forms to their employees. Employers are now expected to equip all new employees with this web page link to fill it out on their own accord. 

Filling out the TD1 form is simple and straightforward. By accounting for and estimating the potential tax credits available, you can gain a picture of what you will owe.   

When do I have to complete this form?

TD1 forms are most often used when an employee starts working for the company or begins receiving pension benefits.

When you want to change the amounts you previously claimed. This could be a change in your personal situation where you have a spouse or eligible dependent you are supporting, or maybe you are eligible for the Disability Tax Credit.

When you want to claim the Northern Residents Deduction for living in a prescribed zone (prescribed northern zone or prescribed intermediate zone).

When you want to increase the amount of tax deducted at source, so you don’t have to pay as much tax when you file your tax return. To change this deduction later, complete a new Form TD1. If you want to decrease the amount of tax deducted at source, use Form T1213 – Request to Reduce Tax Deductions at Source.

Do I have to complete the form yearly?

You don’t have to complete the form every year, only when your situation changes.

You only have 7 days after the change to submit a new form to your employer. If your employer does not have a TD1 form for you, he will make deductions allowing only for the basic personal amount.

Filling TD1 Form may look complex. It is advisable to seek guidance from a tax expert when you need to fill out this form. If you have any questions, feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.

Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.

Salman Rundhawa
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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