Is there a form to help with the calculations?
Yes, there is a chart that can help; check it out here. However, you’ll still need to calculate any taxes, preferably using tax software to make the math automatic, to get to net federal taxes payable on line 42000 first.
Will CPP and EI premiums make a difference to annual income taxes?
The answer is both yes and no. The self-employed, who are unincorporated and have net business income to report, may be required to make a payment of CPP (Canada Pension Plan) contributions. It may also include EI (Employment Insurance) premiums, if the taxpayer has opted to participate in EI.
CPP and EI are in addition to taxes otherwise payable. If you are required to make quarterly tax installments, these payments are included in the required remittances. But if the balance of income taxes payable, without the CPP/EI premiums, is less than $3,000, those premiums will not be added to the installment remittance threshold.
Top five questions about quarterly tax installments
Here are some common questions Canadians have around tax installments.
What happens if I am late paying a quarterly tax bill?
As mentioned, if you are not using the CRA’s billing method, you’ll be charged interest on late or insufficient installment payments when the T1 return is filed and that can sting. At the current quarterly prescribed rate (9% at the time of writing) that can add up quickly, as that interest is compounded daily.
It is possible to offset the compounding interest accruing when your installments are late or insufficient? Simply make the next payment early or pay more than you calculated the next payment to be.
What are the penalties of not making a quarterly tax payment?
In some cases, late or deficient installments will attract penalties if you will owe a lot of money at tax filing time. What’s a lot? CRA’s interest charge has to exceed $1,000. The penalties are 50% of the interest payable, less the greater of $1,000 and 25% of the installment interest. The penalty is calculated as if no installments had been made for the year.
What if my income changes from year to year?
If you qualify for quarterly tax remittances, you can reduce your income that is subject to tax with an RRSP or first home savings account (FHSA) contribution or by making sure that other larger deductions like child care, moving, or non-refundable tax credits like tuition, medical expenses or donations are all claimed in full.
