Every new employee is asked by the payroll department to complete a TD1 Form to determine the amount of tax to withhold. Employers are required to withhold a certain amount of tax based on the information provided on the TD1 Form.
Many employees complete a TD1 Form on their first day at work and then never think about it again. However, life changes can change your tax situation and it may be worth updating your TD1 Form to reflect your situation.
While receiving a tax refund in March or April feels good, this is actually money you overpaid the government during the year. Rather than receiving a lump sum as a refund, some people prefer to receive a little more every paycheque.
If you became a new parent during the year, you are entitled to claim the child amount until your child turns 18. This amount provides $335 in tax savings per child, so adding a child to your TD1 Form could mean some additional dollars on your pay. And it is even more if you are a single parent, since you can also claim the amount for an eligible dependant.
Newlyweds with a spouse who does not work can claim the spousal amount. For 2013, this is more than $1,600 in federal tax savings and, again, can add a few more dollars to every pay. If you have separated in 2013 from a spouse who did not earn income, make sure you update your TD1 Form in 2014 to reflect the change. You can claim the spousal amount in 2013 but you will not be eligible in 2014 and may be facing a tax bill if your tax withholding is not adjusted.
Students starting their first jobs may want to indicate tuition and education credits carried forward on their first TD1 Form. Depending on the amount of carry forward available, this can add up to significant tax savings. For example, a $10,000 carry-forward amount will result in $1,500 in federal tax savings. However, you need to revise your TD1 Form in 2014 once the carry-forward amounts are used to ensure the correct quantity of tax is withheld.
If you would prefer to have a little bit more money every month on your paycheque rather than a lump sum, you should ensure your TD1 Form is kept current with the payroll department. A little bit of paperwork means you get to use your tax credits sooner.