Correcting reporting errors and salary overpayments

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Correcting reporting errors and salary overpayments

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Canada Pension Plan (CPP) recovery and overpayment

If, during a year, you deducted more CPP contributions from your employee's earnings than you should have and you could not reimburse the overpayment:

  • Do not adjust the amounts you report on the T4 slip. We will credit the excess CPP contributions to the employee when he or she files his or her income tax and benefit return.
  • Fill out Form PD24, Application for a Refund of Overdeducted CPP Contributions or EI Premiums, to apply for a refund of your CPP overpayment. Send it to us with your paper-filed T4 information return or mail it separately if you have filed your return electronically.

Make your request no later than four years from the end of the year in which the CPP overpayment occurred.

For more information about CPP overpayments, see CPP overpayment and recovering CPP contributions.

Employment insurance (EI) recovery and overpayment

If, during the year, you deducted more EI premiums from your employee than you should have and you could not reimburse the overpayment:

  • Do not adjust the amounts you report on the employee's T4 slip. We will credit the excess EI premiums to the employee when he or she files his or her income tax and benefit return.
  • Fill out Form PD24, Application for a Refund of Overdeducted CPP Contributions or EI Premiums, to apply for a refund of your EI overpayment. Send it to us with your paper-filed T4 information return or mail it separately if you have filed your return electronically.

Make this request no later than three years after the end of the year in which the EI overpayment occurred.

For more information about EI overpayments, see EI overpayment and recovering EI premiums.

Salary overpayments

If you make an overpayment of salary, wages, or other remuneration to an employee, how you correct this will often depend on the reason the employee was overpaid and the year in which the employee repaid the amount.

You may need to correct overpayments in the following situations:

Note

If you let your employee repay an overpayment in instalments, you may have to calculate a taxable interest benefit. For more information, go to Interest-free or low-interest loans.

Employee did not perform his or her duties

Your employee should repay you the gross amount of the salary overpayment when all of the following conditions are met:

  • The employee is on a leave of absence (that is, the employee did not work)
  • You paid salary or wages the employee would normally be entitled to received under the terms of his or her employment contract or collective agreement during the leave period

  • The employee's circumstances have changed, and the employee is no longer entitled to the salary or wages you paid

Note

If the salary overpayment is the result of a clerical, administrative, or system error, follow the instructions under Clerical, administrative, or system error.

Examples of when an employee did not perform his or her duties

  • You paid your employee a maternity leave top-up amount, but she did not return to work as required under the terms of her collective agreement.
  • You advanced vacation leave credits, but the employee quits working for you before earning the credits.
  • You paid a signing bonus to your employee, but he did not work for the time agreed to in his employment contract.

If your employee does not repay you, include the salary overpayment and the deductions withheld on the overpayment on the employee's T4 slip. No other action is required.

Even if your employee repays you in the same year or a different year, you still have to include the salary overpayment and the deduction withheld on the employee's T4 slip. You cannot adjust the slip or the payroll records to reduce the total employment income or source deductions by the amount of the repayment.

After your employee has repaid the salary or wages, you can give him or her a letter confirming the tax year when the overpayment was included in his or her income, as well as the date, the reason, and the amount of repayment you received. With that letter, the employee will be able to claim a deduction on line 229 his or her personal income tax and benefits return in the year the amount was repaid.

Note

Your employer's share of the Canada Pension Plan (CPP) contributions and employment insurance (EI) premiums is not refundable.

Example of how to report an overpayment when an employee didn't perform his duties

In September 2016, Peter became ill and could not work. You continue to pay his regular salary. In February 2017, he begins to receive payments from a wage-loss replacement plan and repays you the amount of salary he received from September 2016 to February 2017. Do not make any adjustments to his 2016 T4 slip or to his current-year pay records to reflect the amount of repayment. Instead, Peter can claim a deduction for the repayment on his 2017 income tax and benefit return by providing a copy of the letter you gave him confirming the date and the amount he repaid you and the year the amount was included in income.


Clerical, administrative, or system errors

Any overpayment an employee receives will not be salary, wages, or an advance if these two conditions are met:

  • The employee received salary or wages by mistake, because of a clerical, administrative, or system error, even if the employee did no have to work;
  • The employee repays the salary or wages, or makes arrangements to repay the salary or wages.

Note

If the overpayment is not the result of a clerical, administrative, or system error and the employee did not work, follow the instructions under Employee did not perform his or her duties.

Depending on the situation, your employee will have to repay either the net or the gross salary.

Repaying net salary

Your employee should repay you the net amount of the salary overpayment (gross pay, less source deductions) if all of the following apply:

  • The employee repays you in the same year as the overpayment
  • You reimburse your employee for the CPP, EI, and income tax deducted in error; and
  • You can reduce the next payroll remittance you are sending to the CRA by the CPP, EI or income tax sent in error (including your share of CPP and EI) before you send your last remittance for the year to the CRA.

In these situations, do not include on the employee’s T4 slip the salary overpayment or any of the CPP, EI, and income tax withheld on the overpaid salary.

Repaying gross salary

Your employee should repay you the gross amount of a salary overpayment if any of the following apply:

  • The salary paid in error and the repayment are in a different tax year
  • You paid the employee his or her gross salary and did not withhold CPP, EI, and income tax deductions
  • You cannot reduce the next payroll amount you are sending to the Canada Revenue Agency (CRA) for the year of the overpayment

In these situations, you will prepare an amended T4 slip for your employee. Use the CPP, EI, and income tax deductions from the employee’s original T4 slip, but reduce the employment income in box 14 by the amount of their salary repayment. You may also have to amend the EI insurable earnings in box 24 and CPP/QPP pensionable earnings in box 26 to agree with the reduced employment income that you will report in box 14.

If you had to report the CPP and EI deductions withheld in error on the employee’s T4 slip, you can ask for a refund of the employer’s share. Do this by filling out Form PD24, Application for a Refund of Overdeducted CPP Contributions or EI Premiums, and sending it to the CRA.

You can ask for a refund of CPP up to four years after the end of the year in which you deducted it. For EI, you can ask for a refund up to three years after the end of the year in which you deducted it.

Example of a calculation error

In 2016, because of a calculation error, you overpaid your employee $500. She agrees to repay this amount in 2017. You may amend the 2016 T4 slip to reduce the total employment income, as well as the CPP pensionable and EI insurable earnings, by $500. Do not adjust the amount of CPP, EI, and income tax deducted. The employee will not be able to claim a deduction from income in the 2017 tax year for the repayment, but she can amend her 2016 income tax and benefits return. You can ask for a refund of the CPP contributions or EI premiums that you deducted in error.


The employee does not repay the salary or wages

Any time an employee does not repay you the salary he or she received in error, it has to be included on the employee’s T4 slip. Here are some examples and the years you must report the income in:

Examples

  • The employee says he or she will repay the overpayment, but does not. Include the overpayment amount in employment income in the year the employee’s agreement to repay the amount ends.
  • The employee says he or she will not repay the overpayment. Include the overpayment amount in employment income in the year of the overpayment.
  • You give up your right to the amount. Include the amount in employment income in the year of forgiveness.
  • There was knowledge or collusion, and the employee does not repay the amount. Include the amount in employment income in the year of the overpayment.


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Video: Salary overpayments





Date modified:
2017-05-02

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