Switching jobs can be a exciting time. Meeting new people and learning new skills is awesome but what's the tax impact of switching employers? Yes, there is a tax impact. All employers in Canada are required to collect "source deductions" which are typically your CPP (Canada pension plan), EI (employment insurance) and income taxes from your paycheque. Your employer remits these payroll taxes on your behalf to the CRA in addition to the employer contribution portion.
If you have worked at one Job for the entire year then it is unlikely your CPP and EI are incorrect. However if you had more than one employer or switched employers in a year then both employers old and new will have to deduct CPP and EI regardless of the fact you have paid them before. This has nothing to do with your old employer's payroll skills its solely because of the way the calculation is done. #IncomeTaxAct
Clear as mud? Ok, let's say Jag worked at company old from Jan 2015 to Sept 2015. Old employer would have deducted the required source deductions between these months and remitted to the CRA. Good job old employer! The new employer will start your CPP and EI deductions from Oct 2015 to Dec 2015 and will not account for your payments to CPP and EI from the old Employer this leads to overpayment on CPP and EI. Assuming you paid your total maximum 2015 CPP amount of $2479.95 and your EI amount of $930.60 any additional dollar paid over this turns magically into a refund.
It sucks to overpay but it's your responsibility to keep both T4 slips so when you file your income taxes the difference of the over payment will be refunded to you.
Let's think of it as forced saving *cough* or Vacation money?
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- Written by: Jag Bath