# reasons for employer deducting more/less at source?



## joncnca (Jul 12, 2009)

I've been trying to figure out why i always end up with a substantial tax refund while my wife ends up with a substantial balance owing, since I have a higher income and we both have very good saving habits.

My retirement savings are mostly all in RRSP and TFSA, while she also has Pension contributions.

I think I've boiled it down to the fact that my employer deducts a lot more at the source than her employer.

What reasons would an employer have to deduct more or less at source? I didn't realize it before, but I'm pretty glad my employer deducts more, so I can make sure I budget for a lower monthly income than what I actually end up with annually after doing taxes.

Is there a minimum amount to deduct at source? What benefits do an employer obtain by deducting more or less at the source?


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## OptsyEagle (Nov 29, 2009)

Obviously refunds are the result of too much tax being withheld and amounts payable are the result of too little withholding.

The question arises as to why the employer does this. There is no benefit to your employer either way and in any event they are required by law to deduct certain amounts and I suspect they all pretty much abide by this.

A refund can come about from many things, but the one that pops out is your RRSP contribution. If this is made outside of the workplace, your employer would not know about it and would withhold an amount of tax whether it was done or not. Since it was done, a refund would most likely be the result. 

In your wifes case, her pension contributions would be known by the employer and they would withhold less tax because of it and therefore no refund would result from the pension contribution. She has already received her tax savings by having less tax taken from each pay cheque.

Other things that effect refunds and amounts owing are tax credits that you might take that your wife may not get. The big one is, overtime usually results in big refunds because it is done haphazardly. In the weeks one has a lot of overtime it appears their annual income will be much higher when calculated from this high income level and larger amounts of tax are withheld. Since overtime is not done every week (like it is assumed when withholding is calculated) it usually results in a refund of the extra tax paid.

Two jobs usually results in tax payable. That is because each person is allowed one personal exemption (no tax paid on the 1st $11,000 of income) and a graduated increase in tax payable after that. Since both employers think that the employee will receive this they reduce their withholding accordingly. To each employer it may look like the employee earns a low income but when both incomes are added at the end of the year, this will not be the case. When the tax return is done, you are only allowed one personal tax exemption credit and since both employers reduced the tax withholding for it, an amount payable usually results.

Those are the main ones. The most important number is the amount payable, not the refund or amount owing. The refund or amount owing is just a reconciliation between what was owed and what has already been withheld. The number to focus on is the amount that is inevitably paid and of course, you want that number to be as low as possible.


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## Plugging Along (Jan 3, 2011)

Employers have a tax table they must Ollie unless the employee fills out a form to indicate other deductions they may have so the tax isn't with held.

The other main reason for the tax refund difference could be deductions such as medical and child care expenses. Our child are deduction is huge, so it makes a big difference on who ever has to claim it that year.


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## marina628 (Dec 14, 2010)

Also if the employee works lots of overtime the payroll software tends to hold back much more income tax than a normal payroll period.My own payroll fluctuates that way as I take a % of net profits each month as a paycheck.I manually adjust my income tax portion on quick books and can usually get it within $200 at year end.


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## OhGreatGuru (May 24, 2009)

You've heard a number of reasons above why the tax being withheld may be off the mark. The employer uses CRA Form TD1 to determine your deductions before calculating your withholding tax. http://www.cra-arc.gc.ca/E/pbg/tf/td1/
You can ask your employer what is currently on your TD1 and ask to update it if it would help. However, TD1 does not account for RRSP contributions made outside of the workplace, so if that is the main reason for the discrepancy in your case then filing a revised TD1 won't help. But there is a Form T1213 you can file to do this. It has to be filed annually with CRA. You should probably check with your payroll dept. to see if they are set up to it accommodate too.

Your wife could do the same with her employer. But ifyour refund is going to pay for her balance owing, I'm not sure you would want her to pay more upfront.


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## brocko (Apr 20, 2009)

Are you both being taxed as single or both as having dependents?


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## lb71 (Apr 3, 2009)

If your RRSP deductions are made through a group plan at work, your employer may be able to reflect the tax impact on your pay. If done outside of a group plan, then you need to use form T1213. 

Further, if your wife has significant non registered investment income, that wont' be reflected in her deductions. She can cover that by requesting extra tax be deducted via the TD1 form.


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## joncnca (Jul 12, 2009)

Thank you all for the kind responses. I already understood the logistics of how I received a refund while my wife had a balance owing (i.e. my employer deducted more than what I owed, my wife's employer less than what she owed).

My question is WHY would her employer deduct less than the amount that my employer deducts. What motivation is there to deduct more or less.

I think there was a partial answer in that, some employers may deduct more or less depending on whether they believe they are your sole employer. Please consider that my wife and I each only receive employment income from a single employer, and they know this.

Perhaps this is the explanation: my wife receives a consistent pay, while my pay may vary between pay periods, depending on my productivity. Therefore, HR deducts more up front to account for particularly high productivity pay periods (i.e. overtime explanation). That make sense? This actually helps us out because it'll help to make sure we don't have taxes owing, by deducting a lot.

OK, so aside from the above possibilities, what other reasons might an employer adjust the amount deducted at source. 

Is there a specific benefit to the employer to either deduct more or less of an employee's wages at the source?


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## Square Root (Jan 30, 2010)

I think you are missing the point that your employer does not have any discetion as to your tax withholdings. You fill in the form at he beginning of the year and this defines what they must withhold. There are many tax deductions and income sources that are not subject to withholdings ( alimony, investment income, etc) these can be taken into account through the filing of another form with CRA that would give your employer authority to lower wihholdings otherwise required.


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## Eclectic12 (Oct 20, 2010)

joncnca said:


> Thank you all for the kind responses. I already understood the logistics of how I received a refund while my wife had a balance owing (i.e. my employer deducted more than what I owed, my wife's employer less than what she owed).
> 
> My question is WHY would her employer deduct less than the amount that my employer deducts. What motivation is there to deduct more or less.
> 
> ...


Most HR people I've talked to say that the main motivation for taking more taxes is the number of employees who complain. Few employees who get a tax refund will complain and even where they do, they are not really upset about it. If the employer takes too little and there's a large tax bill, most employees aren't prepared for it and are really upset. In other words - the squeaky wheel!

The consistent pay versus variable pay (i.e. overtime) matches most companies I've worked for. Unless I've put the OT into a company run RRSP, there's usually been a tax refund - without much effort on my part.


Cheers


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## Eclectic12 (Oct 20, 2010)

Square Root said:


> I think you are missing the point that your employer does not have any discetion as to your tax withholdings. You fill in the form at he beginning of the year and this defines what they must withhold.
> 
> [ ... ]


Agreed - though this is on the basic salary and amounts. Overtime is an area of discretion. Almost all companies I've worked for take way too much taxes for the overtime. One or two, took substantially less - though I've always had a refund for overtime.

So there's at least one area where there's discretion.


Cheers


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## lb71 (Apr 3, 2009)

Square Root said:


> You fill in the form at he beginning of the year and this defines what they must withhold.


If you are refering to the TD1, you only have to file it when you are hired. If something on your end changes, it is up to you to submit an updated form to HR.


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## Square Root (Jan 30, 2010)

Eclectic12 said:


> Agreed - though this is on the basic salary and amounts. Overtime is an area of discretion. Almost all companies I've worked for take way too much taxes for the overtime. One or two, took substantially less - though I've always had a refund for overtime.
> 
> So there's at least one area where there's discretion.
> 
> ...


Not sure if there is discretion or they simply go by the table(or program) that specifies the withholding. This table usually assumes that the overtime continues for future periods and may therefore overstate the ultimate amounts withheld as opposed to the ultimate tax owng. In any event these amounts tend to be pretty small and balance out at tax time. Is anyone surprised that the gov't supplied tax tables tend to overstate withholdings?


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## Plugging Along (Jan 3, 2011)

joncnca said:


> My question is WHY would her employer deduct less than the amount that my employer deducts. What motivation is there to deduct more or less.
> 
> 
> Perhaps this is the explanation: my wife receives a consistent pay, while my pay may vary between pay periods, depending on my productivity. Therefore, HR deducts more up front to account for particularly high productivity pay periods (i.e. overtime explanation). That make sense? This actually helps us out because it'll help to make sure we don't have taxes owing, by deducting a lot.
> ...


You didn't mention this in your first post. How most of the payroll software works, and Payroll on line, is it takes your current paycheck amount, and it assumes that amount for the whole year. If you have things such as overtime or bonus, even if they are one time, the tax amount is based on what it would be if that was consistent. The deductions are calculated almost in isolation, which on higher paycheck weeks, you would technically be bumped into a higher tax bracket.


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## joncnca (Jul 12, 2009)

thanks again for all the kind replies regarding the technical aspects of HOW i end up with a return (i.e. overtime, etc..)

Eclectic12, i think your reply best addresses my question regarding WHY my employer would withhold more (at least on the discretionary portion from OT), i.e. avoid employees complaining that the employer didn't withhold enough an they end up owing taxes come tax time.

is there any other reason WHY an employer would withhold more. do they have any financial or other incentives to withhold more?


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## Eclectic12 (Oct 20, 2010)

joncnca said:


> [ ... ]
> 
> is there any other reason WHY an employer would withhold more. do they have any financial or other incentives to withhold more?


Only three other ideas come to my mind ... maybe someone else knows others.

1) How often does the employer send in the taxes? 
If it's say quarterly, they *might* be able to bank it until it's sent to the gov't. However, they are paying you and taking tax off, so maybe it's not worth it.

2) That's the way the numbers add up. 
An example of this would be if you make regular RRSP / charitable donations outside the company that will reduce your income significantly and don't file a T1213 Request to Reduce Tax Deductions at Source form. At that point you'll have a refund but the company doesn't know that (or have CRA's approval to do anything about it).

3) They (or their payroll provider/software) made a mistake.


Cheers


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