Income Tax Withholding & Payroll Vocabulary

Key payroll and income-tax terms from Chapter 4 help students recall definitions necessary for calculating withholdings and explaining pay changes.

Province of Employment

The jurisdiction whose income tax rates an employer must apply based on where an employee physically reports or is reasonably attached to an establishment.

TD1 (Personal Tax Credits Return)

CRA form employees complete to claim federal personal tax credits and instruct employers on income tax withholding.

TD1-WS

Worksheet employees use to calculate partial federal tax credit amounts before transferring totals to the TD1.

Provincial/Territorial TD1

A province- or territory-specific personal tax credits return used to determine jurisdictional withholding amounts.

Claim Code

A number (or letter) derived from the total TD1 claim amount that guides payroll tables or software in calculating tax.

Gross Taxable Earnings (GTE)

Total taxable remuneration including salary, wages, taxable allowances and benefits before deductions.

Net Taxable Income (NTI)

Gross taxable remuneration minus deductible amounts (e.g., enhanced CPP portion, RPP, RRSP, union dues) on which income tax is calculated.

Pensionable Earnings (PE)

Earnings (cash plus all taxable benefits) on which CPP or QPP contributions are based.

Insurable Earnings (IE)

Earnings on which EI or QPIP premiums are calculated; includes deemed cash taxable benefits.

CPP Contribution

Mandatory employee deduction calculated on pensionable earnings up to the YMPE at the legislated rate.

Enhanced CPP Contribution

The portion of CPP contributions above 4.95% (first band) plus the entire 4% second-band amount, deductible from NTI immediately.

YMPE (Year’s Maximum Pensionable Earnings)

Annual earnings cap for first-band CPP/QPP contributions.

YAMPE (Year’s Additional Maximum Pensionable Earnings)

Upper limit for the new second CPP/QPP contribution band.

Payroll Deductions Tables (T4032)

CRA publication of federal and provincial/territorial withholding amounts by pay frequency and claim code.

Payroll Deductions Online Calculator (PDOC)

CRA web tool that calculates precise CPP, EI and income tax based on exact earnings and TD1 data.

Manual Method (Tax)

Three-stage process to compute annualized federal and provincial tax when tables or software cannot be used (e.g., Code X, high earnings).

Formula Method (T4127)

CRA-approved algorithms embedded in payroll software or service providers to calculate statutory withholdings.

C/QPP

Canada or Québec Pension Plan, providing retirement benefits; payroll must withhold employee contributions.

EI Premium

Employment Insurance deduction calculated on insurable earnings at the current premium rate.

QPIP Premium

Québec Parental Insurance Plan deduction on Québec insurable earnings for parental benefit funding.

Taxable Benefit

Non-cash, near-cash or cash value advantage employees receive that must be included in taxable income.

Deduction for Enhanced C/QPP Contributions

Reduction from NTI equal to the enhanced CPP/QPP amount, lowering each pay period’s tax withholding.

Request to Reduce Tax Deductions at Source (T1213)

Form employees file with CRA to get a letter authorizing lower tax withholding for large annual deductions.

Letter of Authority

CRA document sent to employers authorizing reduced tax deductions; includes an F1 value for formula users.

F1 Value

Annual deductible amount inserted into payroll formulas to effect CRA-approved tax reductions from a T1213.

Payroll Calculation Template

Step-by-step worksheet showing how to derive net pay from gross amounts and statutory/other deductions.

Net Pay

Amount paid to the employee after all statutory and authorized deductions are subtracted from total gross payments.

First Nations Tax Exemption (TD1-IN)

Form employers use to confirm employment income eligible for tax-exempt status under the Indian Act.

Prescribed Northern Zone Deduction

Daily amount claimable on TD1 for employees living in specified northern/remote areas, reducing NTI.

Non-Resident Code 0

Claim code applied when non-residents or employees with another job cannot claim personal credits.

Pay Period Exemption (CPP/QPP)

Fixed amount per pay frequency subtracted before applying contribution rates to pensionable earnings.

Labour-Sponsored Funds Credit

Investment credit requiring manual tax method when claimed because tables/software don’t accommodate it.

Second CPP Contribution

4 % deduction on pensionable earnings between YMPE and YAMPE, entirely treated as enhanced.

Claim Code X

Table code indicating the employee’s TD1 total exceeds the maximum range; tax must be calculated manually.

Pay Beyond Limits (T4032OC)

CRA tables for employees working in Canada outside any province/territory or paid from outside Canada.

Attachment to Establishment

CRA test for remote workers to decide if they belong to a specific employer location for tax withholding.

PDOC vs. Tables

PDOC uses exact earnings for precise tax; tables use midpoint ranges resulting in minor differences—both valid.

Total Gross Payments

Sum of gross taxable earnings and non-taxable amounts (e.g., reimbursements) actually paid to an employee.

Company Compulsory Deduction

Employer-mandated non-statutory deduction (e.g., RPP contributions) withheld from employee pay.

Voluntary Deduction

Employee-authorized deduction such as charitable donation or additional tax withheld.