A Quick Guide for New Tax Preparers
When preparing Canadian tax returns, employment income is usually the foundation of the entire return. Understanding how it is reported, what slips are used, and which deductions or credits apply will help you prepare accurate returns and avoid CRA reassessments.
This guide summarizes the essential concepts every tax preparer should know.
1️⃣ 🧾 Introduction to Employment Income & Employment Expenses
Employment income refers to money or benefits received from working for an employer. It is one of the most common types of income reported on Canadian tax returns.
💰 What Counts as Employment Income
Typical examples include:
- Salary or wages
- Bonuses and commissions
- Overtime pay
- Vacation pay
- Tips or gratuities
- Taxable benefits from employers
📄 Most of this income is reported on a T4 slip (Statement of Remuneration Paid).
💸 What Are Employment Expenses?
Certain employees may deduct work-related expenses paid out of pocket, such as:
- Vehicle expenses for work
- Work supplies or tools
- Home office expenses
- Work-related phone or internet
- Meals or lodging (specific professions)
⚠️ Important rule:
You can only claim employment expenses if your employer signs Form T2200 – Declaration of Conditions of Employment.
🔎 CRA Review Risk
Because employment expenses are often misused:
- CRA may request receipts
- Claims can be audited
- Incorrect claims may lead to reassessment
✅ Best practice: keep receipts, logs, and supporting documents.
2️⃣ 💼 Employment Income – What Is Included
Employment income includes all money and benefits received because of employment.
Common Types of Employment Income
| Type | Examples |
|---|---|
| Regular Pay | Salary, wages, commissions |
| Extra Pay | Overtime, bonuses |
| Leave Pay | Vacation pay |
| Exit Payments | Severance or retiring allowances |
| Employer Benefits | Company car, insurance premiums |
| Employer Contributions | RRSP contributions, stock options |
💡 Good to know:
Employers calculate taxable benefits and include them on the T4 slip, so preparers normally do not calculate them manually.
3️⃣ 📝 Recording Employment Income on the T4 & T1
The T4 slip acts as a map for entering employment income into the T1 personal tax return.
Important T4 Boxes
| T4 Box | Meaning | T1 Line |
|---|---|---|
| Box 14 | Employment income | Line 10100 |
| Box 16 | CPP contributions | Tax credit |
| Box 18 | EI premiums | Tax credit |
| Box 24 | EI insurable earnings | Info only |
| Box 26 | CPP pensionable earnings | Info only |
| Box 40 | Taxable benefits | Included in Box 14 |
| Union dues | Payroll deduction | Line 21200 |
Key Tips for Preparers
✔ Enter each T4 slip separately
✔ Verify every box on the slip
✔ Some boxes affect deductions or credits
⚠️ Mistakes in T4 entries can trigger CRA reassessments.
4️⃣ ⚠️ Common T4 Errors to Watch For
Even experienced preparers sometimes miss important details on a T4.
Most Common Mistakes
❌ Only entering Box 14
❌ Missing deductions in lower sections
❌ Forgetting union dues or donations
❌ Ignoring health plan premiums
❌ Assuming everything is included in Box 14
Boxes That Often Get Missed
| Box | Item | Impact |
|---|---|---|
| 67 | Severance / retiring allowance | Line 13000 |
| 85 | Health plan premiums | Medical credit |
| Union dues | Payroll deduction | Line 21200 |
| Payroll donations | Charitable credit | Schedule 9 |
✅ Pro Tip
Always review every box on the T4 — not just the top section.
5️⃣ 📄 Employment Amounts on T4A and T4PS Slips
Besides the T4, some employment-related income appears on other slips.
🟢 T4A Slip – Other Employment Income
Common items:
- Research grants
- Wage-loss replacement benefits
- Medical benefits for former employees
- Other special employment payments
📍 Usually reported on Line 10400 – Other Employment Income
🟢 T4PS Slip – Profit Sharing
Used when employees receive dividends from company profit-sharing plans.
Important facts:
- Treated as dividend income
- Reported on dividend lines of the T1
- Dividends are grossed up before calculating taxable income
6️⃣ 💼 Casual Labour, Tips & Odd Jobs (No Slip)
Sometimes clients earn income without receiving a tax slip.
Examples:
- Temporary labour
- Babysitting
- Tutoring
- Cash tips
- Small contract work
⚠️ CRA rule:
All income must be reported even if no slip was issued.
📍 Typically reported on Line 10400.
Good Practice
Encourage clients to keep:
- Payment records
- Logs of work performed
- Tip tracking records
7️⃣ 💼 Reporting Tips & Casual Income on the T1
🍽 Tips and Gratuities
Tips are fully taxable, whether:
- Cash tips
- Electronic tips
- Shared tip pools
📍 Report on Line 10400 – Other Employment Income
⚠️ Preparers should never estimate tips — use client records only.
🔧 Casual Work & Odd Jobs
| Situation | How It Is Reported |
|---|---|
| Single employer | Employment income (Line 10400) |
| Multiple clients | Business income |
If classified as business income, the client may deduct expenses such as:
- Vehicle costs
- Advertising
- Phone expenses
8️⃣ 💼 Wage-Loss Replacement Plan Income
Wage-loss replacement plans provide income when employees cannot work due to illness or injury.
Examples include:
- Disability benefits
- Workplace injury insurance
- Employer insurance plans
How It Is Reported
| Source | Slip |
|---|---|
| Employer paid | T4 |
| Insurance company | T4A |
Taxable Amount
Only the portion not funded by employee contributions is taxable.
Example:
| Item | Amount |
|---|---|
| Benefit received | $24,000 |
| Employee contributions | $4,800 |
| Taxable income | $19,200 |
9️⃣ 📊 CPP & EI Premiums and Tax Credits
Most employees contribute to two national programs:
| Program | Purpose |
|---|---|
| CPP | Retirement income |
| EI | Temporary unemployment benefits |
Where They Appear on T4
| Box | Contribution |
|---|---|
| Box 16 | CPP |
| Box 18 | EI |
Tax Return Credits
| Credit | T1 Line |
|---|---|
| CPP | Line 30800 |
| EI | Line 31200 |
💡 Since 2019, enhanced CPP contributions also create a small deduction (Line 22215).
Maximum Contribution Limits
Each year the government sets limits.
Once earnings exceed the limit:
- CPP deductions stop
- EI deductions stop
This means high-income workers still pay the same maximum as others above the threshold.
🔟 Schedule 8 & T2204 – CPP and EI Overpayments
Employees with multiple jobs often overpay CPP or EI.
Why?
Each employer deducts contributions independently.
Example
| Job | Income | CPP | EI |
|---|---|---|---|
| Job 1 | $60,000 | $2,898 | $856 |
| Job 2 | $18,700 | $800 | $296 |
Total CPP = $3,698 → Overpayment
How the Refund Works
| Form | Purpose |
|---|---|
| Schedule 8 | Calculates CPP contributions |
| T2204 | Calculates EI overpayments |
Refund Lines
| Refund | T1 Line |
|---|---|
| CPP overpayment | Line 44800 |
| EI overpayment | Line 45000 |
💰 Overpayments are refunded automatically when the tax return is filed.
✅ Quick Recap for Tax Preparers
✔ T4 slips report most employment income
✔ Other slips include T4A and T4PS
✔ Tips and cash income must still be reported
✔ CPP and EI contributions generate tax credits
✔ Multiple jobs may create refundable overpayments
✔ Schedule 8 and T2204 handle those refunds
⭐ Final Tip
The best tax preparers don’t just enter numbers — they understand where each amount comes from and why it appears on the tax return.
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