What is a TD1 Form, and Do I Need It?
- Lyle Mustard
- May 6
- 5 min read
Running a business is no picnic.
Even for “Patty’s Picnic Planning - Where Every Day is a Picnic.”
Not even Patty can escape the pocketbook pat-down come tax time.
Nobody packs a picnic for Revenue Canada.
The Taxperson Always Watches
No matter what you do, you can’t escape the taxman.
And your obligations to said taxman, or, rather, taxperson, are many. It’s about more than just filing end-of-year taxes and hoping for a return.
You can go all year without thinking about taxes only to realize that you didn’t deduct any taxes from your employees.
Unless you want to have a little vacation in prison, you really want to avoid tax fraud.
It’s hard to keep track of what you need to know, and how to juggle it all.
When you hire employees, what do you need to know to stay compliant with your, and their, tax obligations?
The Brass Tacks on Tax Forms
When you hire employees, you need to pay them. And when you pay those employees, you need to deduct taxes.
The government doesn’t like it when you guess, and, believe me, they keep track of everything.
This is where the TD1 Tax Form comes in.
What is a TD1 Tax Form?
A TD1 form is a personal tax credit form used by employers to determine how much tax to deduct from your income. They exist for both Federal and Provincial taxes.
Who provides a TD1 form?
It is the employer’s responsibility to provide this form to their employees.
Who fills out a TD1 form?
It is the employee’s responsibility to fill out the form.
At minimum, the employee must sign and date the form. If that is all they do, then only the Basic Personal Amount (BPA) is deducted.
Important note: The BPA can only be claimed on one job at a time. This is often misunderstood, so don’t double dip!
On a TD1, the employee can add additional credits for things like dependants, tuition, or disability, as a few examples, if they want to reduce the tax withheld from their paycheque.
On the other side of that, employees can also request that additional tax be withheld. Maybe they have multiple jobs, or expect to owe at year-end and want to adjust accordingly.
Payroll systems use graduated tax brackets plus EI and CPP calculations to determine withholdings.
But, as we all painfully know, the numbers are never exact and most people would rather get a return owed to them instead of owing even more by the end of the year.
Employees, Employers, and Bookkeepers, Oh My!
This is already a lot to take in and we’ve only just begun.
Running a business is one thing, but when you hire employees, your time overhead to manage everything goes through the roof.
It’s a lot to manage, and every new piece of your business puzzle is more time away from what you do best.
Because we all have a specialty.
Extend Yourself Through External Expertise
We often recommend hiring experts to manage your workload and keep your business management, well, manageable.
And, far too often, we see busines owners underestimate their financial needs.
We’re not trying to funnel you to us - the world is full of excellent financial experts. Chances are, someone in your network already knows a bookkeeper they swear by.
How a Bookkeeper Helps
A bookkeeper helps to carry your financial burden in every way.
There are many who ignore a bookkeeper until it’s the end of the fiscal year and time to file taxes, and by then the books are usually a backlogged disaster.
You don’t need to hire someone full-time. Even once per month services will help you avoid that tax-time panic.
A bookkeeper will help you to:
Review your employees’ TD1 tax forms and request any updates
Enter and update the information into payroll
Help manage employee records
Bookkeepers Help, But Business Hold the Final Responsibility
It bears mentioning that a bookkeeper can help to organize and manage all of this mess, but the final responsibility lies in the business owner.
The employer must keep all TD1 forms on file. Also, TD1 forms change annually, and employees should fill out a new one if their situation changes.
It’s a good idea to review documents annually, even if there don’t seem to be any relevant changes.
Business Types - A TD1 for Everyone
Now that we know a little more about TD1 tax forms and how to manage them, let’s take a look at who needs them.
Because there are many types of businesses, and yours may not apply.
Of course, businesses are always growing and changing, so it’s best to be informed regardless.
In the meantime, let’s see who needs to put this information to work today:
What type of business are you?
A business can be just one person, or it could be tens of thousands.
But even a one-person business may still need to use a TD1 tax form. Do you?
Let’s find out!
A Sole Proprietor with No Employees
Need TD1s? Not usually.
If you are a sole proprietor and you don’t employ anyone, you probably don’t need to worry about a TD1.
The exception is if you draw a T4 income from a separate job.
They do also become relevant if you hire help, such as casual labour or a spouse.
A Sole Proprietor with Employees
Need TD1s? Yes.
You have already learned that you need to issue TD1 forms to all employees, so this certainly applies.
This includes part-time staff or family members.
If they get a paycheque, then TD1-related deductions are involved.
A Corporation, even a Solo Owner
Need TD1s? Yes.
Even if you are the only one in the business, a corporation is its own entity.
If you receive a salary from that entity, then you must fill out a TD1 for yourself as an employee of your own corporation.
Nonprofits and Charities
Need TD1s? Yes, and with a little extra diligence.
Of course, any employees require a TD1.
It can get tricky with nonprofits and charities, as there are often atypical professional relationships.
TD1s must be handled with special care if workers are exempt or have additional deductions.
Contractors and Gig Workers
Need TD1? Maybe, if they are “employees” on paper.
This is a case-by-case situation. If a contractor or “gig” worker is treated as an employee, such as a T4A worker or hybrid contractor, then a TD1 is relevant.
This is where a bookkeeper can take on that load for you, as they know the right questions to ask.
In a Nutshell
Now you know what a TD1 form is, which parties are responsible for what, and which business types apply to these requirements.
As long as you cross and dot everything in all the right places, you can avoid any complications come tax time.
Again, and as always, we recommend hiring a specialist to help you with anything outside of your specialty. Let the experts carry the load so that you can focus on your expertise.
In any event, we hope that this article helps you to take a little more terror out of taxes so you can spend less time sweating deductions and more time mastering the universe.
Until next time!
Written by Lyle Mustard
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