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.