what if my employer does not deduct taxes - canada

What If My Employer Does Not Deduct Taxes – Canada

Have you ever felt like you’re walking a tightrope regarding your taxes in Canada? It can be precarious when your employer doesn’t deduct taxes from your paycheck.

Don’t worry. This article will help you understand the consequences and steps you should take if this happens. We’ll explore employers’ legal obligations, reasons why this might be happening, and more.

So, please take a deep breath and read on to learn what to do if your employer needs to deduct taxes in Canada.

Key Takeaways

  • Employers in Canada are legally obligated to deduct income tax from employees’ wages.
  • Failure to deduct income tax can result in penalties for the employer and potential legal consequences.
  • If income tax is not being removed, employees should review their employment contracts, contact their employer or HR department, consult a tax professional, and, if necessary, report the issue to the tax authority.
  • It is essential for employees to regularly monitor their pay stubs for accuracy and understanding of their tax obligations to ensure compliance and avoid penalties.

Employer Responsibilities

Employers are responsible for deducting taxes from their employee’s wages. As an employer in Canada, your employer must follow the Canada Revenue Agency (CRA)’s directives regarding payroll taxes. This includes deducting federal and provincial income taxes and tax credits or deductions. 

To ensure compliance, your employer must collect and submit their employees’ completed federal Form TD1 and applicable provincial or territorial Form TD1. It would help to deduct CPP contributions, EI premiums, and income taxes from their remuneration or other amounts. The resulting amount must then be remitted to the Receiver General.

Furthermore, employers must adjust income tax deductions if the employee requests and correctly calculate payment deductions.

Ensuring all payroll requirements are met and taxes adequately deducted and remitted is crucial. 

Determining Employment Status

It is important to understand employment status when determining tax obligations, as it affects entitlement to EI benefits and other legislation. Employment status is determined by the facts of the working relationship. For example, if an employer pays employees salaries, wages, bonuses, vacation pay, or tips, this indicates employer status. Providing taxable benefits such as automobiles or allowances also indicates employer status. A written contract, the calendar year, and the number of hours the employee works determine the employee’s position.

Employers in Canada have specific responsibilities regarding income tax and employment insurance premiums. If an employee is classified as an independent contractor, the employer isn’t responsible for deducting income tax or EI premiums. However, suppose the employee is classified as an employee. In that case, the employer must deduct income tax and EI premiums from wages or other remuneration and remit them to the federal government.

Here are some key factors to consider when determining an employee’s employment status:

  • Written contract
  • Calendar year
  • Number of hours worked.
  • Taxable benefits

Understanding employee and independent contractor status differences is essential to complying with legal and tax obligations. If you have any questions about your employment status, consult with a tax professional to ensure you’re correctly classified and taxes are being appropriately deducted.

Consequences of Not Deducting Income Tax

What would happen if your employer didn’t deduct income tax?

Not deducting income tax can severely affect the employee and the employer. If your employer isn’t deducting taxes, you may face a larger tax bill at the end of the tax year. Without proper tax deductions, you may be subject to interest and penalties. Your employer may also face legal consequences for non-compliance.

Your pay stub will also be affected if your employer isn’t deducting income taxes. This could lead to confusion when it comes to budgeting and financial planning, as well as employee benefits administration. Vacation pay, employer contributions, and other forms of income may also be affected.

You may need the proper tax slips to file your return at tax time. This could result in a delay in getting your refund or even an audit from the tax authority. Monitoring your pay stubs to ensure taxes are being deducted correctly is essential. If you discover discrepancies, contact your employer or human resources department immediately.

Understanding your tax obligations and staying informed about tax laws and regulations can also help protect your rights. If your employer isn’t deducting income tax, you should seek professional advice to understand the implications and possible solutions. Open communication with your employer is also crucial in resolving the issue promptly.

Possible Reasons for Not Deducting Income Tax

So, what are the possible reasons for your employer not deducting income tax? There could be various reasons, such as the employee’s income falling below the tax threshold, miscommunication between the employer and the tax authority, the employee being classified as a contractor instead of an employee, or the employer engaging in illegal practices.

To avoid issues, ensure the employee’s income is within the maximum insurable earnings for the previous and current years. Additionally, Canadian residents must pay federal taxes on employment and business income.

Keep records of all communication and pay stubs for future reference to avoid penalties. Consult with a tax professional to understand the implications and potential solutions. Ultimately, staying informed about tax laws and regulations can empower you to protect your rights.

Steps to Take if Income Tax Is Not Being Deducted

If your employer isn’t deducting income tax from your pay, there are a few steps you can take to address the issue.

First, review your employment contracts and agreements to ensure proper classification as an employee.

You should also contact your employer or human resources department to inquire about the issue.

Consult a tax professional to understand the implications and potential solutions if you need to.

It’s also a good idea to keep records of all communication and pay stubs for future reference.

Consider reporting the issue to the tax authority if the situation warrants it.

It’s important to declare all your income on your income tax return, including the payment, with no source deductions.

You may need to file Form T1159 if you’re a nonresident alien.

You may also be eligible for a tax refund if you’re a nonresident alien covered by a tax treaty.

It is important to remember that understanding your tax obligations helps ensure compliance and avoid penalties.

Seeking professional advice can provide clarity on complex tax matters.

Open communication with the employer can help resolve any issues promptly.

Staying informed about tax laws and regulations can empower you to protect your rights.

Importance of Monitoring Pay Stubs

Regularly monitoring your pay stubs is essential to ensure your income tax is being deducted correctly. Pay stubs should include your gross income, any deductions such as CPP and EI, and the net income you’re taking home. They should also indicate how much income tax was paid and your pay period.

It’s important to note that nonresident employers must deduct provincial tax from the rental income they pay to employees. Furthermore, employers may be court-ordered to deduct income tax from an employee’s wages, so pay stubs should indicate whether this is the case.

It’s important to review each pay stub to ensure accuracy and compliance with legal requirements. Pay stubs should accurately reflect your gross pay, deductions, and net pay. If anything looks off, it’s essential to contact your employer to get the issue sorted out.

Understanding Tax Obligations

Now that you know the importance of monitoring your pay stubs, you must also understand your tax obligations to ensure compliance and avoid penalties.

If you’re hired by your employer as an employee, the business owner must withhold income tax from your salary. Other deductions, such as CPP contributions, EI premiums, and taxable benefits, must also be considered. If you are a nonresident employee, your employer must also comply with additional requirements.

Professional advice is necessary to ensure accuracy and legal compliance. Seeking such advice will provide a clear understanding of the amount of tax that needs to be deducted, along with various deductions and contributions.

It’s also essential for your employer to open and maintain a payroll program account, obtain their employee’s social insurance numbers, and collect the required forms. 

Payroll Deductions and Contributions

Payroll deductions and contributions can include:

  • Income tax withholdings.
  • Canada Pension Plan (CPP) contributions.
  • Employment Insurance (EI) premiums.
  • Health insurance premiums.

Self-employed individuals must also pay CPP contributions and EI premiums and may need to make RRSP contributions. These payments can be made using direct deposit.

Employers have specific obligations regarding payroll deductions and contributions. They must deduct the correct amount of income tax from each employee’s wages and remit it to the government. They must also deduct CPP contributions, EI premiums, and other applicable deductions from employees’ salaries.

Employees should know their rights and tax obligations to ensure they receive the correct pay and that all deductions are accurate. They should also be aware of their RRSP contribution limits and understand the implications of tax issues. Keeping updated with Canada’s ever-changing tax laws is essential for employers and employees.

Factors Affecting Payroll Deductions

According to the Income Tax Act, the most common payroll deductions are income tax, CPP, and EI. The employee’s annual income tax bracket determines the income tax deducted from an employee’s salary. In addition, the type of deductions and contributions depend on the employee’s employment status. For example, part-time employees may not be eligible for certain assumptions.

It is important to note that employers are responsible for ensuring that deductions are accurate and comply with legal requirements. 

Calculating Payroll Deductions

Calculating payroll deductions can be tricky, so it’s important to calculate them correctly. You must know your total income, tax brackets and rates, employment status, benefit elections, and coverage levels to do this. You’ll also need to determine how much money you’ll need to pay in personal income tax, social security contributions, health insurance premiums, and retirement plan contributions.

It would help if you started by determining your gross pay to accurately calculate payroll deductions. Then, you’ll need to identify applicable deductions and contributions, calculate the amount for each deduction or contribution, subtract the total deductions from gross pay to get your net revenue, and ensure accuracy and compliance with legal requirements.

Special Situations and Employment in Quebec

If you’re employed in Quebec, you need to be aware of the different regulations and responsibilities that apply. It would be best to deduct contributions from the Quebec Pension Plan (QPP) instead of the Canada Pension Plan (CPP). Furthermore, you must deduct QPIP and EI if employment is insurable. All deductions should be sent to the appropriate authorities – Revenu Québec and the Canada Revenue Agency (CRA). It’s also important to keep records, including Social Insurance Numbers (SIN), which must be collected.

Sole proprietors or those who are residents of Canada but employed by a foreign employer must register and file a territorial income tax return. Collective agreements and the Labor Code Section also determine the deduction and remittance of taxes. 


It’s not uncommon to feel overwhelmed when understanding your tax situation, especially if you suspect your employer isn’t deducting taxes correctly. However, keeping calm and taking the necessary steps to resolve the issue is essential. First and foremost, regularly reviewing your pay stubs can help you identify any discrepancies. If you’re unsure or need more clarification, seeking professional advice from a tax expert can provide the guidance you need. Remember, it’s your right to have accurate tax deductions, and you have options to ensure that your employer is fulfilling their obligations. While navigating a complex maze may feel like you can confidently tackle any tax-related issues with the proper support and knowledge.

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