Only a few weeks left until the Canadian income tax filing deadline!
But don’t worry—if you have a nanny or caregiver, wrapping up your year-end payroll for tax purposes doesn’t have to be complicated. This blog offers a quick, punchy checklist with the key tasks you should tackle to finalize your nanny or caregiver’s pay records and keep the Canada Revenue Agency (CRA) satisfied.
1. Gather Essential Payroll Documents
- Employee Details: Make sure you have your nanny or caregiver’s correct legal name, address, and Social Insurance Number (SIN) on file.
- Payment Records: Pull together pay stubs, timesheets, and any bonus or overtime records.
- CRA Correspondence: Locate any letters or statements the CRA sent you regarding remittance schedules or account balances.
Why It Matters: Having all files in one spot makes it easier to cross-check figures and avoid mix-ups when prepping year-end forms.
2. Double-Check Gross Wages and Deductions
- Total Hours Worked: Confirm the total hours for each pay period, accounting for holidays, sick days, or any extra shifts.
- CPP, EI, and Income Tax: Ensure you’ve accurately withheld the correct amounts. Verify your records match what you remitted.
- Any Reimbursements or Miscellaneous Payments: Did you pay for a training course or reimburse the caregiver for supplies? Include those details in your payroll summary so everything is consistent. Not everything is taxable!
Why It Matters: Incomplete or inaccurate wage and deduction totals can lead to headaches—like T4 adjustments—at year-end.
3. Identify and Classify Benefits
- Health or Dental Plans: Do you pay for any portion of your caregiver’s premiums? Check whether they qualify as taxable or non-taxable per CRA rules.
- Room & Board: If your nanny lives in, confirm if it’s a taxable benefit or exempt based on the employment arrangement.
- Other Perks: Gifts, bonuses, or reimbursements for personal expenses may count as taxable benefits depending on the situation.
Why It Matters: Misclassifying benefits can result in underreported income, triggering corrections (and possibly penalties) later on.
4. Prepare T4 Documentation (and T4A if Applicable)
- Who Needs a T4?: Most nannies and caregivers—if they’re treated as employees—receive a T4 slip.
- Who Might Need a T4A?: If someone is truly an independent contractor (e.g., they only work occasionally or set their own schedule), a T4A might be appropriate instead. Read more here
- Stay on Schedule: T4 and T4A slips are typically distributed and filed by late February. Mark your calendar now for future years to avoid last-minute stress.
If you work with NannyTax for your domestic payroll, we will prepare these slips for you, so you have one less thing to worry about.
Why It Matters: Properly issuing T4 or T4A slips is vital for compliance and helps your nanny or caregiver file their personal tax return correctly.
5. Check Remittances Are Current
- Remittance Frequency: Whether you remit monthly or quarterly, review your payment receipts to confirm all submissions are on schedule.
- Reconcile Amounts: Compare what you should have paid (based on actual payroll) with what you did pay. If you spot discrepancies, address them promptly.
- Reconcile Your Payroll Bank Account: Go through your payroll-specific transactions to ensure they match up with your records. Look out for uncashed or stale-dated cheques, as well as voided ones that might still appear active in your system. Catching these outstanding entries avoids confusion on your year-end forms.
- Balance Your Payroll Tax Account: Double-check that the total deductions you remitted to the CRA (or RQ in Quebec) align with your payroll reports and statements, such as your PD7A forms or Receiver General reports. This helps confirm all tax, CPP, and EI amounts are in sync.
- Address Shortfalls: If your year-end totals show under-remittance or over-remittance, contact the CRA or your payroll provider to correct them ASAP.
Why It Matters: Proper reconciliation keeps your records accurate, prevents delays in closing out the year, and avoids unexpected penalties or interest.
6. Organize Your Records
- Create a Year-End Folder: Store digital or paper copies of timesheets, receipts, and T4-related docs in one place.
- Back Up Electronically: If possible, keep digital duplicates. Hard copies can be misplaced, and digital backups offer extra security.
- Know the Retention Rules: The CRA typically recommends holding on to payroll records for about six years. Read more here.
Why It Matters: Proper record-keeping saves time if the CRA requests documentation and makes future payroll tasks easier.
7. Review Next Year’s Payroll Strategy
- Contract Updates: If you’ll be adjusting hours, adding new tasks, or changing pay rates, plan those changes now so everyone’s clear in the new year.
- Potential Raises or Bonuses: Decide if you’ll offer a salary increase or an annual bonus. Note the recent and upcoming minimum wage adjustments by province here. Document any changes in writing to avoid confusion.
- Look Ahead to Statutory Holidays: Make a note of federal and provincial holidays for the new year so you’re prepared to calculate holiday pay.
- Consider Benefits Enhancements: If you plan to add or adjust health, dental, or other perks, review their tax implications now. Read our recent blog for more information.
- Ask for Help Early: If you anticipate changes in hours or additional hires (like a second caregiver), seek professional advice sooner rather than later.
Why It Matters: Being proactive ensures a smoother transition when the new payroll cycle begins and sets a positive tone for you and your caregiver.
Wrapping Up Your Nanny or Caregiver Payroll
Whether you have lingering questions about T4 slips, taxable benefits, or simply want to streamline the entire payroll process, NannyTax is here for you. Reach out to us anytime for hands-on assistance or expert guidance. Contact us today at taxquestions@nannytax.ca or toll-free at 1-877-626-6982 to learn more.