Step-by-Step: Setting Up a CRA T1213 Tax Reduction
Applying a T1213 (Reduction in Source Deductions) allows an employee to receive an approved "tax break" on every paycheck instead of waiting for a refund at the end of the year. This can only be applied once the CRA has issued an official Letter of Authority.
✅ What You Need Before You Start
Before touching the system, grab the employee’s CRA Letter of Authority and verify these four details:
Employee Name: Must match the name in your payroll record.
Account Number: This is usually the employee’s SIN; confirm it matches your system.
Authorized Year: Approvals are year-specific and do not roll over.
Total Amount: The specific dollar amount the CRA has approved for the reduction.
💡 Pro-Tip: This must be reviewed every calendar year. If the employee doesn't provide a new letter for the new year, you must stop the reduction.
[SAMPLE: CRA Letter of Authority – Highlighting Name, SIN, Year, and Amount]
Step 1: Count Remaining Pay Periods
You need to spread the total CRA amount across the rest of the year’s paychecks.
Check the employee’s pay frequency (e.g., bi-weekly or semi-monthly).
Count exactly how many pay runs are left in the current calendar year.
Step 2: Calculate the Per-Pay Reduction
Use this simple formula to find the amount to enter:
Example:
Letter Amount: $5,269.37
Pay Periods Left: 19
Result: $277.34 (Always round to two decimal places).
Step 3: Open the Federal TD1
Go to the Employee Profile.
Open Federal TD1 (if one doesn't exist, create it; otherwise, click Edit).
[Navigating to Tax Forms > Federal TD1]
Step 4: Enter the "Negative" Value
This is the most important part! To reduce tax, you must enter the amount as a negative.
Find the field: Additional tax deduction.
Type your calculated amount with a minus sign (e.g., -277.34).
[Federal TD1 showing the negative value entered]
Step 5: Save and Double-Check
Once you save, run a Payroll Preview to make sure everything looks right.
Check the Line Items: You should see the standard Federal Tax ($1,497.03 in our example) offset by your Federal Tax (Additional) entry of -$277.34.
The Bottom Line: Ensure the Adjusted Net Pay has increased by that exact amount ($5,264.99).
[Payroll preview showing the tax reduction and increased net pay]
🚩 Common Mistakes to Avoid
Forgetting the Minus Sign: Entering a positive number will increase the employee's tax.
Wrong Pay Periods: Using 26 periods instead of the remaining periods will result in the employee not getting their full tax break.
Expired Letters: Letting a reduction run into a new year without a new CRA letter.