CD 2013-026

1. Purpose

1.1. The purpose of this directive is to provide clients with information about changes to the net amount of pay commencing with the first pay of January 2014.

2. Background

2.1. Each new year, compensation advisors must respond to queries from employees about changes in the net pay amount on the first pay in January compared to the last pay in December.

2.2. To assist client departments in explaining these differences to their employees, this directive is issued on a yearly basis to advise them of the factors that may cause fluctuations.

3. Procedures and Instructions

3.1. The following factors may affect an employee's net pay:

3.2. Public Service Pension Plan

At the beginning of each year, the low rate of the two possible rates of contribution to the public service pension plan is used until the maximum level of contribution for that rate is reached. Then, the higher rate of contribution is used for the remainder of the year. Therefore, if employees who are contributors under the public service pension plan compare their last pay in December to their first pay in January, many of them may see that they have paid a larger amount to the plan in December than in January.

Contributions to the public service pension plan have a direct bearing on the income tax deducted at source since these contributions are deducted from the gross pay before determining the tax rate. The larger the public service pension plan contribution, the less income tax will be withheld from the employee's pay.

The Federal Budget 2012 announced that, effective January 1, 2013, all new employees who become public service pension plan members on or after January 1, 2013 (Group 2 contributors) will contribute at a different rate than employees who became public service pension plan members prior to January 1, 2013. (Group 1 contributors)

Group 1 contributors

Effective January 1, 2014, public service pension plan contributions will be 7.50% (to a maximum of $3,937.50 for the 2014 taxation year) on all pensionable earnings below and equal to the yearly maximum pensionable earnings (YMPE) ($52,500 for the 2014 taxation year), and 9.80% on all pensionable earnings over the YMPE.

Group 2 contributors

Effective January 1, 2014, public service pension plan contributions will be 6.62% (to a maximum of $3,475.50 for the 2014 taxation year) on all pensionable earnings below and equal to the YMPE ($52,500 for the 2014 taxation year), and 7.89% on all pensionable earnings over the YMPE.

3.3. Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) contributions

Many employees reach their maximum level of CPP and QPP contributions sometime during the year. When this happens, the employee will see an increase in the net pay amount as there will no longer be CPP/QPP deductions withheld. Beginning with the new year, employees recommence paying CPP/QPP contributions until such time as they reach the maximum CPP/QPP contribution level for 2014.

Effective January 1, 2014, the CPP rate remains at 4.95% of pensionable earnings. The maximum CPP contribution is $2,425.50, for the 2014 taxation year. The QPP rate will be increased from 5.10% to 5.175% of pensionable earnings for 2014. The maximum QPP contribution is $2,535.75 for the 2014 taxation year.

The CPP contributions provide a federal tax credit of 15%. This tax credit is applied directly to the income tax that is owing and is not dependent on the employee's income tax bracket. Please note that, effective January 1, 1998, the Quebec Tax Reform eliminated the Quebec provincial tax credit for QPP. This tax credit is now included in the basic credit amount of $11,305 for the 2014 taxation year.

3.4. Employment Insurance (EI) Premiums

The employee's rate of EI premiums (excluding employees working in the province of Quebec) for the 2014 taxation year will remain at 1.88% of insurable earnings. The annual maximum insurable earnings will be increased from $47,400 to $48,600. Those employees who had reached their maximum EI premiums during the previous year will recommence paying EI premiums in the new year until the new annual maximum premium level is reached. Once employees reach the annual maximum premium deduction of $913.68 in 2014, they will see an increase in their net pay amount, as there will no longer be EI deductions withheld.

The employee's rate of EI premiums, for employees working in the province of Quebec for the 2014 taxation year, will be increased from 1.52% to 1.53% of insurable earnings. The annual maximum insurable earnings will be increased from $47,400 to $48,600. Those employees who had reached their maximum EI premiums during the previous year will recommence paying EI premiums in the new year until the new annual maximum premium level is reached. Once employees reach the annual maximum premium deduction of $743.58 in 2014, they will see an increase in their net pay amount, as there will no longer be EI deductions withheld.

3.5. Quebec Parental Insurance Plan (QPIP)

Effective January 1, 2014, the employee's QPIP premium rate will remain at 0.559% of insurable earnings. The annual maximum insurable earnings will be increased from $67,500 to $69,000. Those employees who had reached their maximum QPIP premiums during the previous year will recommence paying QPIP premiums in the new year until the new annual maximum premium level is reached. Once employees reach the annual maximum premium deduction of $385.71 in 2014, they will see an increase in their net pay amount, as there will no longer be QPIP deductions withheld.

3.6. Federal Tax Brackets and Rates effective January 1, 2014

Effective January 1, 2014, the federal income tax table has changed as follows:

3.6.1. Canada Employment Credit

Effective January 1, 2014, the maximum amount on which the credit is calculated will be increased from $1,117 to $1,127.

3.7. Provincial and Territorial Tax Brackets and Rates Effective January 1,  2014

There are no changes to the tax brackets or rates for the provinces of Prince Edward Island, Alberta, Nova Scotia and Manitoba.

3.7.1. Newfoundland and Labrador

Effective January 1, 2014, the provincial income tax table has changed as follows:

3.7.2. New Brunswick

Effective January 1, 2014, the provincial income tax table has changed as follows:

3.7.3. Ontario

Effective January 1, 2014, the provincial income tax table has changed as follows:

The provincial surtax payable has been revised as follows:

Where the basic provincial tax payable is less than or equal to $4,331 (formerly $4,289), the surtax payable is $0.

Where the basic provincial tax payable is greater than $4,331 and less than or equal to $5,543 (formerly $5,489), the surtax payable is 20% of the basic provincial tax payable in excess of $4,331.

Where the basic provincial tax payable is greater than $5,543, the surtax payable is the total of 20% of the basic provincial tax payable in excess of $4,331, and 36% of the basic provincial tax payable in excess of $5,543.

3.7.4. Saskatchewan

Effective January 1, 2014, the provincial income tax table has changed as follows:

3.7.5. British Columbia

Effective January 1, 2013, the provincial income tax table has changed as follows:

The provincial tax reduction is indexed and is calculated as follows:

Where net income is less than or equal to $18,200 (formerly $18,181), the reduction is equal to the lesser of (i) basic provincial tax, and (ii) remains at $409.

Where net income is greater than $18,200 and less than or equal to $30,981.25 (formerly $30,962.25), the reduction is equal to the lesser of (i) basic provincial tax, and (ii) $409 - [(Annual net income - $18,200) x 3.2%].

Where net income is greater than $30,981.25, the reduction is equal to $0.

3.7.6. Quebec

Effective January 1, 2014, the provincial income tax table has changed as follows:

Deduction for employment income

Effective January 1, 2014, the maximum deduction for employment income has been increased from $1,100 to $1,110.

3.7.7. Yukon

Effective January 1, 2014, the territorial income tax table has changed as follows:

Territorial Employment Credit

Effective January 1, 2014, the maximum amount on which the credit is calculated will be increased from $1,117 to $1,127.

3.7.8. Northwest Territories

Effective January 1, 2014, the territorial income tax table has changed as follows:

3.7.9. Nunavut

Effective January 1, 2014, the territorial income tax table has changed as follows:

3.8. Tax Adjustment Factors

The calculation of income tax withheld at source is based on the taxable income earned by the employee and the income tax rates in effect for the province of employment at the time the payment is issued. For those employees who work in the province of Quebec in the National Capital Region (NCR) and reside in Ontario, or work in the province of Quebec and reside in Nova Scotia or New Brunswick, their Quebec provincial tax is calculated by using a tax adjustment factor, as provided by the Canada Revenue Agency (CRA). Effective January 1, 2014, the tax adjustment factors will be modified as follows:

3.9. Clients are reminded that each individual's own personal income situation is unique. While the above factors will assist you in your explanation, there are many other factors that may have an effect on the employee's net pay. Some of the factors to consider are: changes to the employee's province of work or residence, salary, deductions, taxable allowances and benefits, personal credits, and hardship exemptions.

3.10. Change in province of work

The income tax deducted from employees' pay is based on their province of work. In some situations, when employees change province of work, the tax liability may be such that they owe CRA and/or Revenu Québec at year end.

Employees who change their province of work at any time during the year are encouraged to review their personal tax situation in order to be aware of their tax liability upon filing at year end.

Employees who wish to have more federal and/or Quebec income tax deducted may do so by completing a "2014 Personal Tax Credits Return", form TD1 E (14) and/or, for the province of Quebec, a "Source Deductions Return 2014", form TP-1015.3-V (2014-01), and providing this documentation to their compensation advisor. For all provinces and territories, with the exception of Quebec, the deduction of additional income tax will continue to be administered by CRA. Please refer to ARCHIVED CD 2002-012, dated March 26, 2002, entitled "Deductions at Source of Additional Income Tax".

4. Inquiries

4.1. Any inquiries on the information contained in this directive should be addressed to your Public Works and Government Services Canada (PWGSC) Compensation Services Office.

Reference(s): CJA 9007-7, 9007-8

Information Notice to Employees

Changes to the Net Pay Amount Commencing January 2014

The purpose of this notice is to provide you with information about changes to the net amount of pay commencing with the first pay of January 2014.

The following factors may affect your net pay:

Public Service Pension Plan

At the beginning of each year, the low rate of the two possible rates of contribution to the public service pension plan is used until the maximum level of contribution for that rate is reached. Then, the higher rate of contribution is used for the remainder of the year. Therefore, if you are a contributor under the public service pension plan and you compare your last pay in December to your first pay in January, you may see that you have paid a larger amount to the plan in December than in January.

Contributions to the public service pension plan have a direct bearing on the income tax deducted at source since these contributions are deducted from the gross pay before determining the tax rate. The larger the public service pension plan contribution, the less income tax will be withheld from your pay.

The Federal Budget 2012 announced that, effective January 1, 2013, all new employees who become public service pension plan members on or after January 1, 2013 (Group 2 contributor) will contribute at a different rate than employees who became public service pension plan members prior to January 1, 2013 (Group 1 contributor).

Group 1 contributor

Effective January 1, 2014, public service pension plan contributions will be 7.50% (to a maximum of $3,937.50 for the 2014 taxation year) on all pensionable earnings below and equal to the yearly maximum pensionable earnings (YMPE) ($52,500 for the 2014 taxation year), and 9.80% on all pensionable earnings over the YMPE.

Group 2 contributor

Effective January 1, 2014, public service pension plan contributions will be 6.62% (to a maximum of $3,475.50 for the 2014 taxation year) on all pensionable earnings below and equal to the YMPE ($52,500 for the 2014 taxation year), and 7.89% on all pensionable earnings over the YMPE.

Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) Contributions

Many employees reach their maximum level of CPP and QPP contributions sometime during the year. If you reach the maximum level of CPP/QPP, you will see an increase in your net pay amount as there will no longer be CPP/QPP deductions withheld. Beginning with the new year, you will recommence paying CPP/QPP contributions until such time as you reach the maximum contribution level for 2014.

Effective January 1, 2014, the CPP rate remains at 4.95% of pensionable earnings. The maximum CPP contribution is $2,425.50 for the 2014 taxation year. The QPP rate will be increased from 5.10% to 5.175% of pensionable earnings for 2014. The maximum QPP contribution is $2,535.75 for the 2014 taxation year.

The CPP contributions provide a federal tax credit of 15%. This tax credit is applied directly to the income tax that is owing and is not dependent on the employee's income tax bracket. Please note that, effective January 1, 1998, the Quebec Tax Reform eliminated the Quebec provincial tax credit for QPP. This tax credit is now included in the basic credit amount of $11,305 for the 2014 taxation year.

Employment Insurance (EI) Premiums

Your rate of EI premiums (excluding employees working in the province of Quebec) for the 2014 taxation year will remain at 1.88% of insurable earnings. The annual maximum insurable earnings will be increased from $47,400 to $48,600. If you had reached the maximum EI premiums during the previous year, you will recommence paying EI premiums in the new year until the new annual maximum premium level is reached. Once you reach the annual maximum premium deduction of $913.68 in 2014, you will see an increase in your net pay amount, as there will no longer be EI deductions withheld from your pay.

If you work in the province of Quebec, your rate of EI premiums for the 2014 taxation year will be increased from 1.52% to 1.53% of insurable earnings. The annual maximum insurable earnings will be increased from $47,400 to $48,600. If you had reached the maximum EI premiums during the previous year, you will recommence paying EI premiums in the new year until the new annual maximum premium level is reached. Once you reach the annual maximum premium deduction of $743.58 in 2014, you will see an increase in your net pay amount, as there will no longer be EI deductions withheld from your pay.

Quebec Parental Insurance Plan (QPIP)

Effective January 1, 2014, if you work in the province of Quebec, your QPIP premium rate will remain at 0.559% of insurable earnings. The annual maximum insurable earnings will be increased from $67,500 to $69,000. If you had reached your maximum QPIP premiums during the previous year, you will recommence paying QPIP premiums in the new year until the new annual maximum premium level is reached. Once you reach the annual maximum premium deduction of $385.71 in 2014, you will see an increase in your net pay amount, as there will no longer be QPIP deductions withheld.

Federal

Effective January 1, 2014, the federal income tax table has changed as follows:

Canada Employment Credit

Effective January 1, 2014, the maximum amount on which the credit is calculated will be increased from $1,117 to $1,127.

Provincial and Territorial Tax Brackets and Rates Effective January 1, 2014

There are no changes to the tax brackets or rates for the provinces of Prince Edward Island, Alberta, Nova Scotia and Manitoba.

Newfoundland and Labrador

Effective January 1, 2014, the provincial income tax table has changed as follows:

New Brunswick

Effective January 1, 2014, the provincial income tax table has changed as follows:

Ontario

Effective January 1, 2014, the provincial income tax table has changed as follows:

The provincial surtax payable has been revised as follows:

Where the basic provincial tax payable is less than or equal to $4,331 (formerly $4,289), the surtax payable is $0.

Where the basic provincial tax payable is greater than $4,331 and less than or equal to $5,543 (formerly $5,489), the surtax payable is 20% of the basic provincial tax payable in excess of $4,331.

Where the basic provincial tax payable is greater than $5,543, the surtax payable is the total of 20% of the basic provincial tax payable in excess of $4,331, and 36% of the basic provincial tax payable in excess of $5,543.

Saskatchewan

Effective January 1, 2014, the provincial income tax table has changed as follows:

British Columbia

Effective January 1, 2014, the provincial income tax table has changed as follows:

The provincial tax reduction is indexed and is calculated as follows:

Where net income is less than or equal to $18,200 (formerly $18,181), the reduction is equal to the lesser of (i) basic provincial tax, and (ii) remains at $409.

Where net income is greater than $18,200 and less than or equal to $30,981.25 (formerly $30,962.25), the reduction is equal to the lesser of (i) basic provincial tax, and (ii) $409 - [(Annual net income - $18,200) x 3.2%].

Where net income is greater than $30,981.25, the reduction is equal to $0.

Quebec

Effective January 1, 2014, the provincial income tax table has changed as follows:

Deduction for employment income

Effective January 1, 2014, the deduction for employment income has been increased from $1,100 to $1,110.

Yukon

Effective January 1, 2014, the territorial income tax table has changed as follows:

Territorial Employment Credit

Effective January 1, 2014, the maximum amount on which the credit is calculated will be increased from $1,117 to $1,127.

Northwest Territories

Effective January 1, 2014, the territorial income tax table has changed as follows:

Nunavut

Effective January 1, 2014, the territorial income tax table has changed as follows:

Change in province of work

The income tax deducted from your pay is based on your province of work. In some situations, when you change your province of work, your tax liability may be such that you owe the Canada Revenue Agency (CRA) and/or Revenu Québec at year end.

If you change your province of work at any time during the year, you are encouraged to review your personal tax situation in order to be aware of your tax liability upon filing at year end.

Tax Adjustment Factors

If you work in the province of Quebec in the National Capital Region (NCR) and reside in Ontario, or work in the province of Quebec and reside in Nova Scotia or New Brunswick, your Quebec provincial tax is calculated by using a tax adjustment factor, as provided by CRA. The tax adjustment factor will be applied against the amount of your federal tax calculated in Quebec, and the amount calculated becomes your Quebec provincial tax amount.

Effective January 1, 2014, the tax adjustment factors will be modified as follows:

If you wish to have more federal and/or Quebec income tax deducted, you may do so by completing a "2014 Personal Tax Credits Return", form TD1 E (14) and/or, for the province of Quebec, a "Source Deductions Return 2014", form TP-1015.3-V (2014-01), and providing this documentation to your compensation advisor. If your department or agency has access to the Compensation Web Applications, you can activate your own additional tax deduction amount through the "Voluntary Deductions" option. Please note that, even though you activate your own additional tax deduction amount, you are still required to complete and send the form TD1 E (14) and/or the form TP-1015.3-V (2014-01) to your compensation advisor.

Any request for information regarding the content of this document should be addressed to your compensation advisor.