T4 Adjustment Options

Slips
1

I can not seem to get the T4 Adjustment Options to work as expected. I have tried each of the options and can’t get the anticipated result, mainly for the Canada Pension Plan.

I would like to use option 3, as sometimes my client’s employees might be a few cents or a few dollars short. This is likely the case in 2016 where many employers with pay periods ending on Friday or Saturday December 30th or 31st would have had 53 weekly pay periods or 27 bi-weekly pay periods. The shortage in CPP could be $3.33 or $6.67 due to this additional pay period.

For CPP, what I would have expected to happen, using option 3 (adjust to the required contribution if the difference exceeds lets say $5.00) would be as follows;

Based on the Pensionable Earnings (and a difference threshold of $5.00);

  • If the CPP Premium is short by less than $5.00 then do not adjust
  • If the CPP Premium is short by more than $5.00 then adjust to required
  • If the CPP Premium is over the annual maximum (assuming Earnings are also over the maximum) by $5.00 or less then do not adjust
  • If the CPP Premium is over the annual maximum (assuming earning are also over the maximum) by $5.00 or more then adjust down to the annual maximum ($2,544.30).

The software is handling the above 4 situations as expected.

Where I disagree with the software’s calculation, is in a common situation where the employee may have made CPP Contributions in excess of the required amount (by more than the $5.00 threshold), but has pensionable earnings under the annual maximum. In these situations, Taxcycle wants to adjust the CPP Premium down to the calculated required amount. Reducing the employee’s CPP contributions in such cases is not permitted by the CRA.

An employee may seem to have overpaid CPP in several instances, which normally include working for less than an entire year for the same employer. Under Adjustment Option 3 the software would be adjusting downward because it is applying the entire $3,500 CPP exemption against an earnings period that may be less than a year. Adjusting downward in these situations is a no no. When they file their T1 return it is possible the employee may have overpaid their CPP contributions, and will receive a refund on their premiums… the employer, however, will not.

EI is a different story… as the premium is based purely on a factor that can be multiplied out. If the EI deductions are greater than $5.00 then the software may certainly adjust down to the required amount, because this was likely a mistake in the deductions. Since CPP has an annual exemption that needs to be allocated across pay periods, the same downward adjustment can not be made, because it is possible (likely) there was no overpayment.

T4 Adjustment Option 4 comes close but does not work for me, as it ignores the $5.00 threshold, and wants to adjust for pennies of shortage.

Anyway… to summarize, I believe the following rule should be true for T4 Adjustment Option 3;

  • If the CPP deducted from the employee is over the annual maximum (but the Pensionable Earnings are under the maximum) then DO NOT ADJUST the CPP contribution downward.
2

Option 4 will adjust for under-deductions and only adjust downward if over the maximums.

3

Right Arliss… but with no tolerance… it won’t use the threshold if you are short by a few bucks.

4

I have tried to get Taxcycle to do what Cameron did with profile T4; however, I think it has always been put on the back burner.

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@snoplowguy, did you put in the pensionable periods?

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@Bert… thanks for pointing this out.

The Taxcycle default seems to be 26 and 26 for type and number. I see that playing around with (reducing) the number of pensionable periods will get me to a point where the software doesn’t want to adjust the actual contribution that has been withheld from the employee. In some of my cases, with client supplied summary data, I do not know the answer for number of pensionable weeks, but I can certainly fiddle with the number in this pensionable period box to plug in a figure that will stop the software from wanting to reduce the CPP contributions in situations where it should not do so.

I don’t think Pensionable Periods was brought up at the slips webinar last week, but it is certainly something that is important to the calculations.

Thanks Bert!

7

I have filed a few sets of T4’s tonight.

While preparing the T4’s I keep running into this same issue, especially with seasonal workers. My workaround is, as Bert noted, to adjust the pensionable periods so that Taxcycle is satisfied there is no actual CPP overage.

Perhaps for next year, an idea might be to to have a further option in “T4 Adjustment Options” settings to not use pensionable periods to adjust CPP contributions downward, but leave any overage alone unless over the maximum.

Preparing T4 slips in Taxcycle is saving me time over using Profile, and I love being able to check my entries using the “Payroll View”, as I am entering from summary sheets. The only thing I find that is slowing me down a bit is fiddling around with the CPP Pensionable periods in cases where the software feels the employee has overpaid their contributions.

I have some other ideas that may make the T4 module a little more intuitive, but I’ll bring them up after filing season.

I am carrying forward all files from Profile and carefully checking the import. Other than a few RP0002’s that should have been RP0001’s So far I am finding this module to be a nice piece of software.

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8

Well…

After about 2 days of processing, I have just discovered the “Ignore Adjustments” box on the T4 slip, which I am now using to workaround this CPP issue instead of fiddling with the pensionable pay periods. :slight_smile:

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9

you can set that as your default in your options…

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Right… but I wouldn’t want to do that. I would like Taxcycle to adjust, if for some reason, I miscalculated when I prepared my input sheet. I have my tolerances set at $5.00 for EI and $6.67 for CPP. What I am doing as I prepare the slips is checking to see if Taxcycle wants to make any adjustments to a T4… and if I don’t agree with it (ie if it wants to reduce CPP contributions) then I will check the box that says “ignore adjustments” for that particular slip.

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wondering why you chose those amounts of tolerance?

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$5.00 has always been the tolerance the CRA has used in deciding whether or not to issue a PIER for withholding shortages. I would normally have both CPP and EI set at $5.00.

Every few years, a weekly employer will have 53 pay periods in the year (instead of 52) and a bi-weekly employer will have 27 pay periods in the year (instead of 26). For most of our employers, 2016 was one of these years. Many employers have a common pay period that ends either on a Friday or a Saturday. It just so happened that in 2016 January 1st and 2nd were a Friday and Saturday, and December 30th and 31st were also a Friday and a Saturday. Weekly employers with a Friday or Saturday pay period end would have experienced 53 pay weeks during 2016. Bi-weekly employers that had their first pay period ending on January 1st or 2nd also had an additional pay period (pp 27) end on December 30th or 31st.

This situation does not cause any difficulties for the calculation of EI Premiums, as this amount is normally a basic calculation of insurable earnings multiplied by the EI rate, subject to an annual maximum. Realistically speaking, you shouldn’t even require a $5.00 tolerance, but the CRA uses it, and I suppose it helps those employers that may have handed out year end bonus cheques of up to $265.

My use of the $6.67 tolerance for CPP is set to accommodate bi-weekly employers who had an additional pay period during 2016. Most of the payroll software out there would have unknowingly allocated $3,634.62 instead of $3,500 as the annual CPP exemption. The $6.67 tolerance I set for CPP was calculated by converting the bi-weekly exemption of $134.62 into an actual premium; $3,500 exemption divided by 26 pay periods x 0.0495 = $6.66

So far, in my T4 processing I haven’t really found it necessary to rely on this tolerance, as I haven’t come across any shortages on CPP or EI. We wrote our own payroll software back in 1991 so I have access to make some changes on the fly. What I did before running payroll for the last week of December for any affected employers was go into the software and change the annual CPP exemption from $3,500 to $0 so the extra pay period did claim any part of the 3,500 exemption that would have been completely used up in the prior pay period.

Yes I know… my wife says I have a serious problem with overthinking things… :slight_smile:

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