Enter tax values from government letters

An employee may apply to CRA or Revenu Quebec for a tax reduction because of extra expenses, large personal RRSP contributions or other reasons.

An employee may also apply to CRA or a provincial tax office to authorize their employer to apply other federal non-refundable tax credits not included in the TD1 Personal Tax Credits Return form against their income throughout the year, as opposed to waiting until they file their personal tax return in the new year. For example, medical expenses and charitable donations.

To do this, an employee must complete form T1213 and attach supporting documents.

If approved in both cases, the employee will receive a letter that indicates a dollar value by which Federal taxable income can be reduced or that should be treated as an additional Federal/Provincial Tax Credit.

Important:

  • On the first payroll of the new year, permanent tax credit or reduction values will be reset to '0'.

  • If the letter received is applicable for multiple years, new values must to be entered.

  • Save the letter for your records.

  • If the employee is requesting a reduction for a subsequent year and the letter from CRA does not include this, they must reapply to CRA for the new calendar year.

  • If an authorization is received mid-year, Powerpay will take the annual total entered and prorate the deduction or credit based on the pay periods remaining in the year.

Tasks

Calculate the tax reduction or tax credit value

Use the example that best matches the employee situation.

Enter the full claim amount if this is the first pay the reduction of tax at source or tax credit is applied.

Example:

  • Claim amount $9000

Calculation:

  • Not required

Enter 9000 in the applicable field(s).

Note: The value on the letter is an annual reduction. Powerpay automatically prorates the amount entered over the remaining periods of the year. This value is cleared when you open the first payroll run of the new year (for example, Pay Period 001). If the reduction is to continue, the employee must reapply and new values must be re-entered.

If you have claimed the amount(s) for the employee from the start of the year on another payroll system, the following calculation must be completed to determine the amount to enter in Powerpay.

The value on the letter is an annual reduction. Powerpay automatically prorates the amount entered over the remaining periods of the year.

Note: This value is cleared when you open the first payroll run of the new year (for example, Pay Period 001). If the reduction is to continue, the employee must reapply and new values must be re-entered.

Example:

  • Claim amount from letter $9000

  • Semi-monthly payroll [24 pays]

  • Current PPN 21 [4 pay periods remaining – including current]

Calculation:

  • 9000 / 24 = 375

  • 375 x 4 = 1500

Enter 1500 in the applicable field(s).

If you have claimed the amount(s) for the employee starting part way through the year (I.e. not PPN 1) on another payroll system, the following calculation must be completed to determine the amount to enter in Powerpay.

The value on the letter is an annual reduction. Powerpay automatically prorates the amount entered over the remaining periods of the year.

Note: This value is cleared when you open the first payroll run of the new year (for example, Pay Period 001). If the reduction is to continue, the employee must reapply and new values must be re-entered.

Before starting, confirm the first pay period the employee started the claim.

Example:

  • Claim amount $9000

  • Semi-monthly payroll [24 pays]

  • First pay period claim was applied [PPN 8 – April 30 pay date]

  • 24 [full year pay period] – 7 [# of pay periods completed before claim applied] = 17

  • Current Pay period 21 [4 left including current]

Calculation:

  • # of pay periods remaining in year including first claim period = 24 - 7 = 17

  • 9000 / 17 = 529.41

  • 529.41 x 4 = 2117.64

Enter 2117 in the applicable field(s).

  1. Click the Pay Period menu and click the Enter button for the pay period you want to work with.
  2. Go to the Statutory Deductions page.Closed From the Payroll menu, select Regular Payment > Statutory Deductions.
  3. Select the employee from the Employee List.
  4. Go to the Tax Options - Additional Permanent Values section.
  5. Enter value from the letter, or calculated amount, as appropriate.

    The written authorization from CRA or Revenu Quebec will either describe a tax deduction (which reduces taxable income) or a tax credit (which reduces tax).

    • Federal Tax Reduction - Enter value in Amount entered will reduce Federal taxable income (CRA letter). CRA refers to this as an F1 amount.
    • Provincial Tax Reduction - Enter value in Amount entered will reduce Provincial taxable income

    • Federal Tax Credit - Enter value in Amount entered will be treated as a Federal tax credit (K3 value)

    • Provincial Tax Credit - Enter value in Amount entered will be treated as a Provincial tax credit (K3P value)

    The amounts entered for federal and provincial are typically the same unless another calculation* is provided. A reason they might be different is if the employee reports to or is paid from Quebec. A letter from CRA can only authorize employers to reduce provincial income tax outside of Quebec. Employees require a letter of authority issued by Revenu Quebec to reduce source deductions for Quebec income tax.

  6. Click Save.

* If the employee requested a reduction in income tax because they work in a different province or territory other than the one they live in, alternate setups may be available to achieve the reduced withholding.