Hello again, everyone! Today I thought I'd write a post regarding something I see a lot: confusion about how to fill out the TD1 form and how it will affect your tax return. In this post, I'll explain how the TD1 form works and how to fill it out properly. This post will be particularly helpful for people who work multiple part-time jobs and end up owing money on their tax returns. Hopefully understanding some basics will save you some surprises when you file your taxes at the end of the year. Please note that I'm referencing material for the 2024 tax year, so the numbers I mention could change in the future.
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Why do I even need to fill out this form?
The purpose of the TD1 is to tell your employer how much tax to take off your pay cheques. If you fill it out incorrectly or don't submit a new form when your tax situation changes, it might result in you having a balance owing when you file your taxes at the end of the year. So it's important to understand some basics.
If you've worked for the same employer for a number of years, it may have been some time since you've filled out a TD1 form. Some employers get their employees to fill one out every year, but most of the time people will only see this form when they start a new job. Be aware that you can submit a new form to your employer at any time if you decide the amount of tax being withheld isn't correct for your situation.
Okay, the form tells your employer how much tax to withhold, but how does it do that? If you've ever had the form explained to you by an employer, you were probably told to just write the basic personal amount on line 1, write the same number at the bottom of page 1, and sign page 2. That's a safe option for a lot of people. If you just have one employer at a time, filling out the form that way will probably work just fine. Let's look a bit deeper, though.
Filling out the TD1 correctly
If you take a look at each numbered line in the image above, some of the descriptions might sound familiar. Numbers 5-8 are especially common: tuition, disability, spousal amount, eligible dependant. These are all tax credits you can claim on your tax return. The amounts for each line on the TD1 don't exactly match the amount you actually claim on your taxes, but don't let that confuse you. The differences between the TD1 amounts and the tax return amounts are due to how tax withholding is calculated, and you can ignore the exact numbers. Just know that each line on page 1 of the TD1 corresponds to a tax credit on the tax return.
Line number 1 on the TD1 is basic personal amount. This corresponds to the basic personal amount that all Canadian residents are able to claim on their taxes. Claiming the tax credit on your return means that you will not pay tax on the first $15,000 of your income. It's because almost everyone can claim this amount that your employer told you to write it on the TD1 form. Essentially what you're doing is telling your employer, "I will be claiming the basic personal amount on my tax return, so please calculate the amount you withhold based on the fact that I won't need to pay tax on $15,000 of my income." Each time you write an amount on another line of the TD1, you're telling your employer to take less tax. If one of your children has a disability and you were going to claim a caregiver amount on your tax return, you could write $2,616 on line number 2 on the TD1. That would tell your employer, "I'm going to claim the personal amount and a caregiver amount on my taxes, so please calculate the amount you withhold based on me not paying tax on $17,600 of my income."
If your eyes glazed over partway through that last paragraph, the TL;DR version is that the more things you claim on the TD1 form, the less tax your employer will take off your pay cheques and the more likely it is that you will owe money when you file your taxes.
Maybe for you owing money at tax time isn't a concern. You'd rather have bigger pay cheques and more money in your pocket all year and pay the government when you file your tax return. It's like an interest free loan! In your case, you'll want to make sure you're aware of all the tax credits you can claim and are filling out all the corresponding lines on the TD1.
Special considerations for people working more than one job
For people working more than one job at the same time or jumping from job to job throughout the year, there's something else to think about. If you work two jobs at the same time and fill out the TD1 the same for each job, you're telling both of your employers not to bother withholding taxes unless they know you'll be making more than $15,000. Telling that to both of them means that you won't have tax taken from your pay cheques unless you're making more than $30,000. . . uh oh. Use the basic personal amount on only one TD1 form, even if you have multiple employers. Usually you want to use the basic personal amount on the TD1 for the job where you make the most money. Sometimes you don't know which job that is when you first start, though. And sometimes things change. Remember, as I mentioned above, you can submit new TD1 forms whenever you need to.
Another scenario is if you don't spend very long at a job, your employer might not bother taking much tax off since they know that you're going to make less than $15,000 there. Maybe that happens at the next job, too. Then you move on to a third job and by this time you've made well over $15,000 but none of your employers have withheld much, if any, tax from your pay cheques.
Both of the above situations could result in you having a balance owing when you file your tax return. There are some things you can do to prevent this. Let's take a look at page 2 of the TD1.
On page 2 is a box that you can tick under the heading "More than one employer at the same time." If you read the text next to the box, it tells you exactly what to do. Tick the box and leave all the lines on page 1 blank, except for a zero on the total line at the bottom. This tells your employer to start withholding tax from the first dollar you make, rather than waiting until they know you'll be making more than $15,000. You'd think that would take care of things, except it's often not that easy. Many employers don't understand how this form works any better than the average person. So even if you fill out the form properly, they won't know what to do with that information and will just keep doing things the way they usually do. Sometimes it's not their fault, and the software or payroll service they're using to calculate their payroll deductions can't be customized to match your situation. Because of that, just to be safe, I advise people to fill out another section on page 2 of the TD1 form, as well.
Asking your employer to withhold extra tax
This is a section that anyone can fill out, not just people working more than one job in a year. You might want your employer to take off extra tax to cover income from other sources that doesn't have tax withheld, like investment or self-employment income. You might just like getting a big refund at the end of the year. In the "Additional tax to be deducted" section, you'll write a number in the box with the dollar sign. If you write $50, your employer will take however much tax they would normally take off your pay cheques plus an additional $50. If you just want a bigger refund, the amount you write in the box can be whatever you want. If you're filling out the box to make sure you won't owe any money when you file your taxes, you'll need to put a bit more thought into it, though.
A simple way to figure out if the additional tax being deducted is enough is to take a look at your pay cheque and figure out what percentage of your income is being withheld for income tax. If you know what tax bracket you're in, you can compare that to the tax being withheld and see if the percentages are close. If you're in the 15% tax bracket and your employer is withholding 13% tax, you're good! If you're in the 26% tax bracket and your employer is withholding 17% tax, you might want to get some extra taken off. Remember that there are other factors that determine how much tax you need to pay, so for some people this won't be all that accurate. It's an okay rule of thumb, though. If you're an Empanda Tax client, we're always happy to figure this out for you. Just get in touch and we can do the calculations for you.
Thanks for sticking with it! I know this isn't the most interesting stuff to read about, but I hope this explanation of the TD1 form helps some of you feel more in control of things. And now, please get back to your summer - before it's over!
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