Payroll taxes are an important aspect of payroll accounting for any business in Canada. As an employer, it’s essential to understand how to calculate and pay payroll taxes accurately to avoid penalties and ensure compliance with the law. In this blog post, we’ll discuss the steps you need to take to calculate and pay payroll taxes in Canada.

Step 1: Determine the payroll tax obligations

As an employer in Canada, you’re required to pay various payroll taxes, including:

  • Canada Pension Plan (CPP) contributions
  • Employment Insurance (EI) premiums
  • Federal and provincial income tax

Before you can calculate your payroll taxes, you’ll need to determine your tax obligations. You can do this by checking with the Canada Revenue Agency (CRA) or consulting with a payroll specialist.

Step 2: Calculate the payroll taxes

Once you’ve determined your payroll tax obligations, you can begin calculating the amounts you need to pay. Here are the steps to follow:

  • Calculate CPP contributions: The CPP contribution rate for employees in 2021 is 5.45% of their gross salary, up to a maximum of $61,600. Employers must match the employee’s CPP contribution. You can use the CRA’s online calculator to determine the exact amount of CPP contributions.
  • Calculate EI premiums: The EI premium rate for employees in 2021 is 1.58% of their gross salary, up to a maximum of $56,300. Employers must also pay EI premiums at a rate of 1.4 times the employee’s premium. Again, you can use the CRA’s online calculator to determine the exact amount of EI premiums.
  • Calculate federal and provincial income tax: The amount of federal and provincial income tax that you need to deduct from an employee’s salary depends on their taxable income and their province of residence. You can use the CRA’s payroll deductions online calculator to determine the exact amount of income tax to deduct.

Step 3: Remit the payroll taxes

After you’ve calculated the payroll taxes, you need to remit them to the CRA on time. The remittance due dates depend on your business’s size and payroll frequency. Generally, the remittance due date is the 15th of the month following the payroll period. For example, if you paid your employees on May 31st, the remittance due date would be June 15th.

Step 4: Keep accurate payroll records

It’s essential to keep accurate payroll records to ensure compliance with the law and make it easier to file taxes. You should keep all payroll-related documents, such as timesheets, pay stubs, and tax forms, for at least six years.

In conclusion, payroll taxes are an essential part of payroll accounting, and as an employer, it’s crucial to understand how to calculate and pay them accurately. By following the steps outlined in this blog post, you can ensure compliance with the law and avoid penalties. If you’re unsure about any aspect of payroll accounting or tax obligations, consult with a payroll specialist or contact the CRA for guidance.