Tax rules, thresholds and administrative procedures can change. Confirm current official requirements and obtain advice for material transactions or unusual facts.
Each payroll may think it is your only payroll
Payroll deductions are calculated from the information each employer has. If both employers apply the full basic personal amount and other credits, total withholding may be lower than the tax on combined annual income.
This does not mean the second job is taxed at an unfair special rate. The tax return combines income from both jobs and calculates tax using annual brackets and credits.
Example
Ayesha earns $52,000 from her main job and $24,000 from weekend employment. Each employer receives a TD1 claiming the basic personal amount. The second employer withholds as though the $24,000 were Ayesha's only annual income.
At filing time, total taxable income is approximately $76,000 before other items. Part of the weekend income falls into a higher marginal bracket than the second employer assumed, and personal credits cannot be duplicated. A balance owing results.
How to correct withholding during the year
Review TD1 forms when starting the second job. The form includes an option for a person with more than one employer or payer at the same time. The employee may also ask an employer to deduct an additional fixed amount from each pay.
Estimate the annual shortfall before choosing the extra deduction. Dividing the expected shortfall by remaining pay periods creates a practical amount.
CPP and EI are reconciled differently
An employee may reach annual CPP and EI maximums across combined jobs even though each employer continues deducting based on its own payroll. Excess employee contributions are generally reconciled on the personal return, subject to the rules. Employers do not combine payroll records with one another.
The possibility of a CPP or EI refund does not necessarily offset an income-tax shortfall, so each amount should be estimated separately.
Other factors that create a balance
Investment income, self-employment profit, taxable benefits, insufficient tax on a bonus, reduced credits or benefit repayments can add to the issue. A person with two jobs should estimate the entire return rather than attributing the balance only to the second T4.
Year-round process
Keep current pay statements from both employers. Re-estimate total income after wage changes or overtime. Review withholding by mid-year and again in the fall. Making a small correction over several pays is easier than funding a large balance in April.
This article provides general Canadian tax information and is not a substitute for tax, legal, financial or investment advice based on complete circumstances.