Question

what might cause an employee to have an over-contribution to the CPP or EI?

Answer 1

Sometimes, an employee may pay too much Canada Pension Plan (CPP), Quebec Pension Plan (QPP), or Employment Insurance (EI) premiums during the year. Usually this is because the employee has changed jobs. When a new job is started, CPP/QPP and EI premiums are calculated without regard to premiums paid at the old job, so it is possible to pay more than the maximum annual amount.

If you deduct excessive Canada Pension Plan (CPP) contributions or Employment Insurance (EI) premiums from employees, this means you have also overpaid the employer portion of these costs.

In order to remedy this, for overpayments in the current calendar year, you can reduce your current year remittances by the total amount overpaid (including employer portion), and refunding to employees the excess that you have collected from them.

For overpayments in a prior calendar year, you can apply for a refund (within time limits) by completing the Canada Revenue Agency (CRA) form PD24 - Application for a refund of overdeducted CPP contributions or EI premiums.

The following time limits apply for filing the application for a refund:

for CPP contributions, no later than four years from the end of the year in which the overpayment occurred for EI premiums, no later than three years from the end of the year in which the overpayment occurred for overpayments refundable due to a decision by the Minister of National Revenue or by the court, no later than 30 days after the decision is communicated to you or the employee.

When the employer applies for a refund using form PD24, only the employer portion of the EI premiums or CPP contributions are refunded. If the employee has also overpaid and the T4 included incorrect insurable or pensionable earnings amounts, the employer must issue an amended T4 for the applicable taxation years. The amended T4 will show the revised amount of insurable or pensionable earnings (zero if appropriate), and the actual amount of premiums or contributions paid by the employee. The employee will then have to adjust their previously filed tax returns based on the revised T4, which will automatically trigger a refund of the overpaid EI premiums or CPP contributions.

Sometimes, wages are non-pensionable, which means CPP contributions are not payable on the earnings. Some wages are non-insurable, which means EI premiums are not payable on the earnings. If an overpayment is related to non-pensionable or non-insurable earnings, a ruling may be required from CRA. To request a ruling, see their web page How to obtain a ruling for CPP and EI purposes. A ruling must be requested no later than June 30th of the year following the year to which the ruling relates.

Schedule 8 will be completed to calculate your CPP or QPP contributions if either:

    - you are a resident of Quebec and contributed only to QPP, or

    - you are a resident of another province/territory and contributed only to CPP.

Form RC381 will be completed to calculate your CPP or QPP contributions if either:

    - you are a resident of Quebec and contributed to CPP, or to both CPP and QPP, or

    - you are resident of another province/territory and contributed to QPP, or to both CPP and QPP.

All of the above is automatically done by tax software when you enter amounts from your T4 slips or RL-1 slips.

There may be a situation where the CPP or QPP contributions or EI premiums have been overpaid, even though the maximum amount of premium for the year was not paid. If you are filing your tax return manually, you will enter on lines 308 and 310 of schedule 1 the actual amounts of CPP or QPP and EI premiums paid.  It is not necessary to calculate the overpayment yourself. When Canada Revenue Agency (CRA) receives your tax return, it automatically calculates any overpayment and refunds it to you. If you use tax software to file your return, any overpayment should automatically be calculated, and entered on lines 448 for CPP and 450 for EI.

If there has been a ruling that your employment earnings were not insurable or pensionable, and you have paid premiums for prior taxation years for these earnings, your employer must issue a revised T4 showing zero insurable or pensionable earnings (if that is the case), but showing the actual EI premiums or CPP contributions paid . You must then amend your previously filed tax returns based on the revised T4s, which will trigger a refund. See our article for businesses on recovering overpaid EI premiums or CPP contributions.