There are a few questions that I get asked by newbies to having a nanny. One of them is “is there anything that I can do ahead of time to make sure that the tax paperwork for my nanny is all in order before she starts working”? And the answer is – yes!
Have an understanding of how much a nanny will cost
Budget, budget, budget – the key word in making sure that you are not going to have any cost surprises. It would be a nightmare to employ your nanny for a month and end up needing to change your childcare plans altogether because you realize it is not in your budget. Add up her net (after tax) pay, the amount being remitted to the Canada Revenue Agency (including the employer portion of Canada Pension Plan contributions and Employment Insurance premiums), as well as any Workers Compensation Board premiums. If you are providing any extra benefits such as a bus pass, be sure to include that in the calculation as well. As long as the number you come up with is something you can afford, then you can go ahead with your nanny plans!
Ask your employee to complete a TD1 form
Never heard of a TD1 form? You are not alone; but you have likely filled one out before. The TD1 form is the Personal Tax Credits Return that needs to be completed by your employee in certain circumstances such as when working for a new employer (you!), or if the employee wants to deduct more tax from source. The employee will need to sign and date the form and give it to you. If your nanny does not complete the form, you “will deduct taxes after allowing the basic personal amount only.” This document is especially important if your nanny is employed by more than one person since an employee can only claim the basic amount once. Bottom line is – make sure you understand how income tax works!
Open your account with the Canada Revenue Agency (CRA)
You are about to set out on the trek of becoming an employer. One of the many responsibilities of an employer is to take source deductions (tax, Canada Pension Plan premiums, and Employment Insurance premiums) from the employee’s pay and remit them, along with the employer portion, to the CRA. In order to do this, you need to have an account to remit the funds to! Before your nanny even starts to work for you, you can prepare by opening up a business number with a payroll deductions account attached to it. How do you do that? You call the CRA at 1-800-959-5525, or go to their website. Or, you can have nannytax.ca complete the registration for you!
Make sure that you are familiar with your Provincial Employment Standards with regard to issues such as Statutory Holidays, Vacation Pay and Time, pay stub requirements, and overtime. Each province’s rules are different so visit the website applicable to where you live, and review the information carefully.
If you want help with your nanny’s payroll taxes, you can always reach out through www.nannytax.ca or call 1-877-626-6982 and we will be more than happy to provide you with “nanny tax frustration relief!”