ARCHIVED - Payroll Deductions Formulas - 112th Edition Effective July 1, 2020
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ARCHIVED - Payroll Deductions Formulas - 112th Edition Effective July 1, 2020
This guide has been changed since the June 2, 2020 release.
T4127 JUL (E) Rev. 20/07
La version française de cette publication est intitulée Formules pour le calcul des retenues sur la paie – 112e édition.
Table of contents
Changes since the June 2, 2020 release
This update provides clarification that no proration is required for 2020 if using the Option 2 Tax formula based on cumulative averaging, with regards to the new Yukon Basic Personal Amount and the new marginal tax rate for income over $220,000 in British Columbia. For Option 1 the pro-rated amounts are the same. For more information see the “What’s New for July 1, 2020?” section below.
Is this guide for you?
Use this guide if you are a payroll software provider or a company which develops its own in-house payroll solution.
This guide has the formulas you need to determine federal, provincial (except Quebec), and territorial income taxes, Canada Pension Plan (CPP) contributions, and employment insurance (EI) premium deductions. The formulas also let you calculate payroll deductions for income sources such as commission, pension, bonuses, and retroactive pay increases.
The formulas used in this guide to calculate statutory deductions have been approved for purposes of the Income Tax Act, the Canada Pension Plan, and the Employment Insurance Act, as well as their related regulations and any amendments proposed to
these acts.
For more information on income amounts that are subject to payroll deductions, see the publication T4001, Employers’ Guide – Payroll Deductions and Remittances.
If you have questions about the formulas in this guide, contact your tax services office or tax centre. For the address and
telephone numbers of your tax services office or tax centre, see the listings in the government section of your telephone book or visit canada.ca/taxes.
Distribution of this guide
This guide is available in electronic format only.
Electronic mailing lists – more ways to serve you!
We provide an electronic service that can notify you immediately, free of charge, of any changes for payroll deductions.
To subscribe, go to canada.ca/cra-email-lists and enter your business’s email address for each mailing list that you want to join.
Payroll Deductions Online Calculator
For your payroll deductions, you can use our Payroll Deductions Online Calculator (PDOC) to verify your calculations. The calculator includes an option to help you make sure that enough Canada Pension Plan contributions and employment insurance premiums have been withheld for full-year employees.
It calculates payroll deductions for the most common pay periods, as well as the applicable province (except Quebec) or territory. The calculation is based on exact salary figures.
PDOC is available at canada.ca/pdoc.
Payroll Deductions Tables
Using the following links you can download the publications T4032, Payroll Deductions Tables and Publication T4008, Payroll Deductions Supplementary Tables. You can also choose to print only the pages or information that you need. For more information on payroll, see our webpage at canada.ca/payroll.
What’s new for July 1, 2020?
This guide reflects some income tax changes recently announced which, if enacted as proposed, would be effective July 1, 2020. At the time of publishing, these proposed changes may not have been law. We recommend that you use the Payroll Deductions Online Calculator (PDOC), the publication T4032 Payroll Deductions Tables, or the publication T4008 Payroll Deductions Supplementary Tables, and the formulas in this guide for withholding, starting with your first payroll in July 2020.
Federal changes
There are no federal changes in this version of the guide as at the time of publishing a federal 2020 budget had not been released. Should a federal 2020 budget be released later in the year with changes to payroll deductions we may release an updated version of this guide.
Provincial changes and Territorial Changes
You will find below the provincial and territorial tax changes effective January 1, 2020. The current and previous figures for the most commonly used rates, amounts, and claim codes can be found in Chapter 4.
Please note that that there is no change for Alberta, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island, Quebec, Saskatchewan, or Outside Canada.
British Columbia
New tax bracket
- For 2020 and subsequent years, a new top marginal rate of 20.5% is introduced for British Columbia tax filers with incomes over $220, 000. The new bracket will be indexed starting in 2021.
- For those using the Option 1 tax formula a prorated tax rate of 24.2% and a value of 27,550 for factor KP will apply for income greater than $220,000 for pay periods starting July 1, 2020.
- For those using the Option 2 tax formula based on cumulative averaging, no proration is required. Use the new top marginal rate of 20.5% and a value of 19,140 for factor KP for incomes over $220, 000. For details on the option 2 tax formula see the January 2020 release of this guide.
Given the current situation with COVID-19 pandemic we understand that employers are facing unique challenges. For the remainder of 2020 the CRA will expect this change to be implemented on a best efforts basis.
Yukon
Yukon Basic Personal Amount
The Yukon Basic Personal Amount (BPAYT) has been changed to mirror the Federal Basic Personal Amount (BPAF). A new factor BPAYT has been created and added to the Chapter 2 — Glossary.
To adjust for the first six months, a prorated calculation will apply for the remaining six months, commencing with the first payroll in July.
Starting July 1, 2020, for those using Option 1, the formula below will apply for BPAYT. The prorated amounts in the formula are $14,160 and the factor ($1,862 / $63,895).
The prorated formula is :
Where NI* ≤ $150,473, BPAYT = $14,160
Where $150,473 < NI* < $214,368, BPAYT**= $14,160 - (NI* - $150,473) × ($1,862 / $63,895)***
Where NI* ≥ $214,368, BPAYT = $12,298
Starting July 1, 2020, for those using Option 2 tax formula based on cumulative averaging, the formula below will apply for BPAYT.
The formula is :
Where NI* ≤ $150,473, BPAYT = $13,229
Where $150,473 < NI* < $214,368, BPAYT**= $13,229 - (NI* - $150,473) × ($931 / $63,895)***
Where NI* ≥ $214,368, BPAYT = $12,298
* Variable NI represents Net Income = A + HD
** If the BPAYT has three or more digits after the decimal point, increase the second digit after the decimal point by one if the third digit is five or more, and drop the third digit. If the third digit after the decimal point is less than five, drop the third digit
*** Note that there is no rounding on this division
The Yukon Claim Code Chart and corresponding CSV file has been removed as the BPAYT will be unique to each employee’s annual income.
The Yukon Claim Code chart income range is $2,350 between all claim codes once the BPAYT has been calculated. For example, if the Yukon BPAYT is $12,298 for a particular employee, then the claim code 2 range would be $12,298 – $14,648 and so forth up to claim code 10.
Given the current situation with COVID-19 pandemic we understand that employers are facing unique challenges. For the remainder of 2020 the CRA will expect this change to be implemented on a best efforts basis.
Glossary definition
The glossary definition of BPAYT has been updated*
Chapter 2 – Glossary
All factor definitions appear only in the Glossary unless further details are required in specific situations.
Table 2.1 Glossary
| Factor | Meaning (for complete details, see the formulas) |
| A | Annual taxable income |
| B | Gross bonus, retroactive pay increase, vacation pay when vacation is not taken, accumulated overtime payment or other non-periodic payment |
| B1 | Gross bonuses, retroactive pay increases, vacation pay when vacation is not taken, accumulated overtime payments or other non-periodic payments year-to-date (before the pay period) |
| BPAF | Federal Basic Personal Amount |
| BPANS | Basic Personal Amount for Nova Scotia |
| BPAYT | Basic Personal Amount for Yukon |
| C | Canada (or Quebec) Pension Plan contributions for the pay period |
| CEA | Canada Employment Amount, a non refundable tax credit used in the calculation for K4 and K4P |
| D | Employee’s year-to-date Canada Pension Plan contribution with the employer (cannot be more than the annual maximum) |
| DQ | Employee’s year-to-date Quebec Pension Plan contribution with the employer (cannot be more than the annual maximum) |
| D1 | Employee’s year-to-date employment insurance premium with the employer |
| E | Total commission expenses deductions reported on Form TD1X |
| EI | Employment insurance premiums for the pay period |
| F | Payroll deductions for the pay period for employee contributions to a registered pension plan (RPP) for current and past services, a registered retirement savings plan (RRSP), to a pooled registered pension plan (PRPP), or a retirement compensation arrangement (RCA). For tax deduction purposes, employers can deduct amounts contributed to an RPP, RRSP, PRPP, or RCA by or on behalf of an employee to determine the employee’s taxable income |
| F1 | Annual deductions such as child care expenses and support payments, requested by an employee or pensioner and authorized by a tax services office or tax centre |
| F2 | Alimony or maintenance payments required by a legal document dated before May 1, 1997, to be payroll-deducted authorized by a tax services office or tax centre |
| F3 | Employee registered pension plan or registered retirement savings plan contributions deducted from the current non-periodic payment. You can also use this field or design another to apply other tax-deductible amounts to the non-periodic payment, such as union dues |
| F4 | Employee registered pension plan or registered retirement savings plan contributions deducted from the year-to-date non-periodic payments. You can also use this field or design another to apply other tax-deductible amounts to the non-periodic payment, such as union dues |
| G | Gross commission amount including gross salary at the time of payment, plus any taxable benefits for commission-remunerated employees who have filled out Form TD1X. When an employee has not filed Form TD1X, tax is calculated the regular way |
| HD | Annual deduction for living in a prescribed zone, as shown on Form TD1 |
| I | Gross remuneration for the pay period. This includes overtime earned and paid in the same pay period, pension income, qualified pension income, and taxable benefits, but does not include bonuses, retroactive pay increases, or other non-periodic payments |
| I1 | Total remuneration for the year reported on Form TD1X. This include commission payments, salary (where applicable), non-periodic payments, and taxable benefits |
| IE | Insurable earnings for the pay period including insurable taxable benefits, bonuses, and retroactive pay increases |
| K | Federal constant. The constant is the tax overcharged when applying the 20.5%, 26%, 29%, and 33% rates to the annual taxable income A |
| KP | Provincial or territorial constant |
| K1 | Federal non-refundable personal tax credit (the lowest federal tax rate is used to calculate this credit) |
| K1P | Provincial or territorial non-refundable personal tax credit (the lowest tax rate is used to calculate this credit) |
| K2 | Federal Canada Pension Plan contributions and employment insurance premiums tax credits for the year (the lowest federal tax rate is used to calculate this credit). Note: If an employee has already contributed the maximum CPP and EI, for the year with the employer, use the maximum CPP and EI deduction to determine the credit for the rest of the year. If, during the pay period in which the employee reaches the maximum, the CPP and EI, when annualized, is less than the annual maximum, use the maximum annual deduction(s) in that pay period |
| K2P | Provincial or territorial Canada Pension Plan contributions and employment insurance premiums tax credits for the year (the lowest provincial or territorial tax rate is used to calculate this credit). If an employee reaches the maximum CPP or EI for the year with an employer, the instructions in the note for the K2 factor also apply to the K2P factor. For employees paid by commission, use the federal K2 formula for commissions and replace the lowest federal rate in the K2 formula with the lowest provincial or territorial tax rate |
| K2Q | Quebec Pension Plan contributions, employment insurance premiums, and Quebec Parental Insurance Plan premiums federal tax credits for the year (the lowest federal tax rate is used to calculate this credit) |
| K3 | Other federal tax credits (such as medical expenses and charitable donations) authorized by a tax services office or tax centre |
| K3P | Other provincial or territorial tax credits (such as medical expenses and charitable donations) authorized by a tax services office or tax centre |
| K4 | Canada employment amount credit (the lowest federal tax rate is used to calculate this credit) |
| K4P | Provincial or territorial Canada employment amount credit (only applies to Yukon) |
| L | Additional tax deductions for the pay period requested by the employee or pensioner as shown on Form TD1 |
| LCF | Federal labour-sponsored funds tax credit |
| LCP | Provincial or territorial labour-sponsored funds tax credit (only applies to New Brunswick, Newfoundland and Labrador, Nova Scotia, Saskatchewan, British Columbia, and Yukon) |
| M | Accumulated federal and provincial or territorial tax deductions (if any) to the end of the last pay period |
| M1 | Year-to-date tax deducted on all payments included in B year-to-date |
| N | The number of days since the last commission payment. The minimum basic exemption amount of $67.30 is included in the formula in line with CPP legislation |
| NI | Net income for the year |
| P | The number of pay periods in the year |
| PI | Pensionable income for the pay period, or the gross income plus any taxable benefits for the pay period, including bonuses and retroactive pay increases where applicable |
| PR | The number of pay periods left in the year (including the current pay period) |
| R | Federal tax rate that applies to the annual taxable income A |
| S | Provincial tax reduction (only applies to Ontario and British Columbia) |
| S1 | Annualizing factor |
| T | Estimated federal and provincial or territorial tax deductions for the pay period |
| T1 | Annual federal tax deduction |
| T2 | Annual provincial or territorial tax deduction (except Quebec) |
| T3 | Annual basic federal tax |
| T4 | Annual basic provincial or territorial tax |
| TB | Tax deductions, i.e., bonuses or retroactive pay increases, payable now |
| TC | “Total claim amount” reported on federal Form TD1. If Form TD1 is not filed by the employee or pensioner, TC is the basic personal amount, and for non-resident individuals, TC is $0. If the claim code is E, T = $0. If the province is Ontario, even if the claim code is E, the Ontario Health Premium is payable on annual income over $20,000 |
| TCP | “Total claim amount” reported on the provincial or territorial Form TD1. If that form is not filed, TCP is the provincial or territorial basic personal amount |
| U1 | Union dues for the pay period paid to a trade union, an association of public servants, or dues required under the law of a province to a parity or advisory committee or similar body |
| V | Provincial or territorial tax rate for the year (does not apply to Quebec, outside Canada, or in Canada beyond the limits of any province or territory) |
| V1 | Provincial or territorial surtax calculated on the basic provincial or territorial tax (only applies to Prince Edward Island and Ontario) |
| V2 | Additional tax calculated on taxable income (only applies to the Ontario Health Premium) |
| Y | Additional provincial or territorial tax reduction based on applicable amounts reported on the provincial or territorial Form TD1 |
| YTD | Year-to-date |
Chapter 3 – Option 1 – Tax formula
Formula to calculate annual taxable income (A)
As the formula to calculate the annual taxable income and the explanatory variables have not changed, they have not been reproduced.
Formula to calculate basic federal tax (T3)
As the formula to calculate the basic federal tax and the explanatory variables have not changed, they have not been reproduced.
Formula to calculate annual federal tax payable (T1)
As the formula to calculate the annual federal tax payable has not changed, this has not been reproduced.
Formula to calculate annual basic provincial or territorial tax (T4)
As the formula to calculate the annual basic provincial or territorial tax has not changed, this has not been reproduced.
Formula to calculate annual basic provincial or territorial tax (T2)
As Yukon is the only province or territory to have changes, we are only reproducing their calculations.
Yukon
Effective July 1, 2020 the calculation is:
BPAYT = Where NI* ≤ $150,473, BPAYT = $14,160
Where $150,473 < NI* < $214,368, BPAYT**= $14,160 - (NI* - $150,473) × ($1,862 / $63,895)***
Where NI* ≥ $214,368, BPAYT = $12,298
* Variable NI represents Net Income = A + HD
** If the BPAYT has three or more digits after the decimal point, increase the second digit after the decimal point by one if the third digit is five or more, and drop the third digit. If the third digit after the decimal point is less than five, drop the third digit.
*** Note that there is no rounding on this division.
Given the current situation with COVID-19 pandemic we understand that employers are facing unique challenges. For the remainder of 2020 the CRA will expect this change to be implemented on a best efforts basis.
T2 = T4 + V1 – S – LCP
If the result is negative, T2 = $0.
Where:
T4 = (V × A) – KP – K1P – K2P – K3P – K4P
V and KP are based on 2020 index values for A see the Rates (R, V), income thresholds (A), and constants (K, KP) for 2020 Table 4.1 in Chapter 4.
K1P = 0.064 × TCP
K2P = [(0.064 × (P × C, maximum $2,898.00)) + (0.064 × (P × EI, maximum $856.36))]
K4P = The lesser of:
(i) 0.064 × A*; and
(ii) 0.064 × CEA
CEA is an indexed amount. See Table 4.2 Other rates and amounts in Chapter 4.
* For the Canada employment amount, A is the annual gross income from office or employment before deductions. Only include the amounts from office or employment, this is the same amount you normally report in box 14 of the T4 slip (s).
V1 = $0
S = $0
LCP = The lesser of:
(i) $1,250; and
(ii) 25% of the amount deducted or withheld during the year for the acquisition by the employee of approved shares of the capital stock of a prescribed labour‑sponsored venture capital corporation
Chapter 4 – Rates and amounts
To download these tables in comma-separated values (CSV)format see the T4127 Payroll Deductions Formulas website.
Table 4.1 Rates (R, V), income thresholds (A), and constants (K, KP) for 2020
| 1st | 2nd | 3rd | 4th | 5th | 6th | 7th | ||
| Federal | A | 0 | 48,535 | 97,069 | 150,473 | 214,368 | ||
| Federal | R | 0.1500 | 0.2050 | 0.2600 | 0.2900 | 0.3300 | ||
| Federal | K | 0 | 2,669 | 8,008 | 12,522 | 21,097 | ||
| AB | A | 0 | 131,220 | 157,464 | 209,952 | 314,928 | ||
| AB | V | 0.1000 | 0.1200 | 0.1300 | 0.1400 | 0.1500 | ||
| AB | KP | 0 | 2,624 | 4,199 | 6,299 | 9,448 | ||
| BC | A | 0 | 41,725 | 83,451 | 95,812 | 116,344 | 157,748 | 220,000 |
| BC | V | 0.0506 | 0.0770 | 0.1050 | 0.1229 | 0.1470 | 0.1680 | * |
| BC | KP | 0 | 1,102 | 3,438 | 5,153 | 7,957 | 11,270 | * |
| MB | A | 0 | 33,389 | 72,164 | ||||
| MB | V | 0.1080 | 0.1275 | 0.1740 | ||||
| MB | KP | 0 | 651 | 4,007 | ||||
| NB | A | 0 | 43,401 | 86,803 | 141,122 | 160,776 | ||
| NB | V | 0.0968 | 0.1482 | 0.1652 | 0.1784 | 0.2030 | ||
| NB | KP | 0 | 2,231 | 3,706 | 5,569 | 9,524 | ||
| NL | A | 0 | 37,929 | 75,858 | 135,432 | 189,604 | ||
| NL | V | 0.0870 | 0.1450 | 0.1580 | 0.1730 | 0.1830 | ||
| NL | KP | 0 | 2,200 | 3,186 | 5,218 | 7,114 | ||
| NS | A | 0 | 29,590 | 59,180 | 93,000 | 150,000 | ||
| NS | V | 0.0879 | 0.1495 | 0.1667 | 0.1750 | 0.2100 | ||
| NS | KP | 0 | 1,823 | 2,841 | 3,613 | 8,863 | ||
| NT | A | 0 | 43,957 | 87,916 | 142,932 | |||
| NT | V | 0.0590 | 0.0860 | 0.1220 | 0.1405 | |||
| NT | KP | 0 | 1,187 | 4,352 | 6,996 | |||
| NU | A | 0 | 46,277 | 92,555 | 150,473 | |||
| NU | V | 0.0400 | 0.0700 | 0.0900 | 0.1150 | |||
| NU | KP | 0 | 1,388 | 3,239 | 7,001 | |||
| ON | A | 0 | 44,740 | 89,482 | 150,000 | 220,000 | ||
| ON | V | 0.0505 | 0.0915 | 0.1116 | 0.1216 | 0.1316 | ||
| ON | KP | 0 | 1,834 | 3,633 | 5,133 | 7,333 | ||
| PE | A | 0 | 31,984 | 63,969 | ||||
| PE | V | 0.0980 | 0.1380 | 0.1670 | ||||
| PE | KP | 0 | 1,279 | 3,134 | ||||
| SK | A | 0 | 45,225 | 129,214 | ||||
| SK | V | 0.1050 | 0.1250 | 0.1450 | ||||
| SK | KP | 0 | 905 | 3,489 | ||||
| YT | A | 0 | 48,535 | 97,069 | 150,473 | 500,000 | ||
| YT | V | 0.0640 | 0.0900 | 0.1090 | 0.1280 | 0.1500 | ||
| YT | KP | 0 | 1,262 | 3,106 | 5,965 | 16,965 |
* For option 1 use the prorated rate of 0.2420 and the KP value of 27,550 for the remainder of 2020; For Option 2 Tax formula based on cumulative averaging use the rate of 0.2050 and the KP value of 19,140. See “What’s new for July 1, 2020?” for more information.
Table 4.2 Other rates and amounts for 2020
| Basic amount |
Index rate |
LCP rate |
LCP amount |
CEA | S | T4 → V1 | V1 rate | Abatement | Surtax | |
| Federal | BPAF | 0.019 | 0.150 | 750 | 1,245 | |||||
| AB | 19,369 | – | ||||||||
| BC | 10,949 | 0.025 | 0.150 | 2,000 | 476 | |||||
| MB | 9,838 | 0.022 | ||||||||
| NB | 10,459 | 0.019 | 0.200 | 2,000 | ||||||
| NL | 9,498 | 0.009 | 0.200 | 2,000 | ||||||
| NS | BPANS | – | 0.200 | 2,000 | ||||||
| NT | 15,093 | 0.019 | ||||||||
| NU | 16,304 | 0.019 | ||||||||
| ON | 10,783 | 0.019 | 249 | 0 | 0.000 | |||||
| ON | 10,783 | 0.019 | 4,830 | 0.200 | ||||||
| ON | 10,783 | 0.019 | 6,182 | 0.360 | ||||||
| PE | 10,000 | – | 0 | 0.000 | ||||||
| PE | 12,500 | 0.100 | ||||||||
| QC | 0.165 | |||||||||
| SK | 16,065 | – | 0.175 | 875 | ||||||
| YT | BPAYT | 0.019 | 0.250 | 1,250 | 1,245 | |||||
| Outside Canada |
0.480 |
For information on 2020 federal personal amounts, see the form TD1, Personal Tax Credits Return and the form TD1X, Commission Income and Expenses for Payroll Tax Deductions. For information on 2020 provincial or territorial personal amounts, see the respective form TD1AB, TD1BC, TD1MB, TD1NB, TD1NL, TD1NS, TD1NT, TD1NU, TD1ON, TD1PE, TD1QC, TD1SK, or TD1YT.
Table 4.3 British Columbia claim codes
| Claim code | Option 1, TCP = ($) | Option 1, K1P ($) | Total claim amount ($) from | Total claim amount ($) to |
| 0 | No claim amount | No claim amount | 0.00 | 0.00 |
| 1 | 0.00 | 10,949.00 | 10,949.00 | 554.02 |
| 2 | 10,949.01 | 13,413.00 | 12,181.00 | 616.36 |
| 3 | 13,413.01 | 15,877.00 | 14,645.00 | 741.04 |
| 4 | 15,877.01 | 18,341.00 | 17,109.00 | 865.72 |
| 5 | 18,341.01 | 20,805.00 | 19,573.00 | 990.39 |
| 6 | 20,805.01 | 23,269.00 | 22,037.00 | 1,115.07 |
| 7 | 23,269.01 | 25,733.00 | 24,501.00 | 1,239.75 |
| 8 | 25,733.01 | 28,197.00 | 26,965.00 | 1,364.43 |
| 9 | 28,197.01 | 30,661.00 | 29,429.00 | 1,489.11 |
| 10 | 30,661.01 | 33,125.00 | 31,893.00 | 1,613.79 |
- Date modified:
- 2020-06-25