How to grow your summer job paycheque

By completing two forms, less tax will be deducted, writes Jamie Golombek.

If you’re a student who has landed a summer job this year, you’ve likely noticed you’re getting significantly less each paycheque than you were promised when you signed your employment contract.

The main reason for this, of course, is taxes, along with other payroll deductions such as CPP contributions and EI premiums.

But just because your employer is withholding tax from each pay doesn’t mean that you will owe any taxes in 2016. Depending on your earnings, in summer and for any part-time work during the school year, you may end up with a tax refund next April.

That’s because the federal basic personal amount for 2016 is $11,474, meaning if you earned less than this amount, there will be no tax owing when you file your return and you would be entitled to a tax refund.

But wouldn’t it be simpler if the employer, knowing you were going to earn less than the basic personal amount during the summer months, simply didn’t withhold any taxes? That way, you could have more money each paycheque and not have to wait until spring to get back your money.

An employer wrote to the Canada Revenue Agency asking this question. The employer’s summer student worked for three months over the summer and was paid semi-monthly (i.e., six pay periods). Let’s say the student’s salary per pay period was $1,500, amounting to a total summer salary of $9,000. The CRA was asked if the employer could withhold tax as if the salary for that period were the annual salary for the year.

The CRA’s response was no. It stated income tax is required to be withheld on “notional remuneration” for the year, which is based on the maximum number of pay periods possible in a year.

In our example, the employer was required to withhold on the basis the student earns $36,000 annually ($1,500 x 24 semimonthly payments). As the CRA wrote, “The Regulations do not make an allowance for reduced income tax withholding where the term of employment is less than a year. … the Regulations provide for a notional calculation of annual remuneration based upon the maximum possible number of such pay periods in a year.”

While it may be too late to do anything about it this year, there are two things students should keep in mind that can improve their cash flow next summer.

The first is make sure a properly completed Form TD1, “Personal Tax Credits Return,” along with its provincial (or territorial) equivalent, is completed when you start your summer job. This form lists all the credits to which you may be entitled and includes not only the basic personal amount, but also tuition, education and textbook amounts. (The education and textbook amounts will be eliminated for 2017). A properly completed TD1 form will allow your payroll department to reduce your tax deductions.

Secondly, if you feel the withholding requirements “place undue hardship” on you, apply to have all or part of the withholding tax waived. Complete Form T1213, “Request to Reduce Tax Deductions at Source,” which must be sent to the CRA and, once approved, your employer will be authorized to reduce the amount of tax withheld.