Canadian Remittances to the Government Payroll taxes

In Canada, employers are required to withhold employment insurance premiums (EI), Canada pension plan premiums (CPP), and federal and provincial income tax from their employees' gross pay. On top of that, the employer must remit their own premiums to EI and CPP. At the time of printing, an employer has to match the required CPP premium deducted from the employees' pay and has to pay 1.4 times the employees' EI premium.

In the books of the company, there would be several accounts set up to deal with this activity.

Wages (expense): The gross wages of the employee would go into this account.

Payroll taxes (expense): The employer's portions of the cpp and EI premiums go into this account.

Payroll liabilities: This account is for both the withholdings from the employees' pay and the employer's portion of the CPP and EI premiums.

Let's look at an example of how these remittances are accounted for. Say an employee makes $35 per hour and worked 80.25 hours in the pay period. Her gross pay would be $2,808.75. From the income tax tables provided by Canada Customs and Revenue Agency, the required CPP is $123.01, the required EI is $146.92, and the combined federal and provincial income tax is $842.63. This means that the employer also has to contribute $123.01 in cpp (1 times the employee contribution) and $205.69 in EI (1.4 times the employee contribution).

The only actual expense for the employer for the payroll taxes is the employer's share. The rest comes out of the employee's gross pay. The accounting entry to capture all of this information is ­

                      DR       Wages            $2,808.75

                      DR       Payroll taxes        328.70

                      CR       Payroll liabilities            $1,441.26

                      CR       Cash                              1,696.19

 

This entry reflects the gross pay of $2,808.75, the extra taxes the employer has to pay of $328.70, the total amount owed to the government of $1,441.26, and the actual paycheck that goes to the employee of $1,696.19.

When the remittance to the government is made (usually the following month), the entry is­

                      DR       Payroll liability       $1,441.26

                      CR Cash                                         $1,441.26

 

This entry wipes out the liability and reflects the check cut to the government.