Payroll Tax Deduction Rates
in the U.S. and Canada

by L. Kenway BComm CPB

THE BOOKKEEPER'S TIP

Learn the best way to claim your CRA hiring credit for small business (2011-2013) in QuickBooks.

Payroll tax deductions are mandatory for small business owners in the U.S. and Canada.

In this chat, I'll answer these two questions:

  1. What is the employer's and employee's Social Security tax rate for 2017?
  2. What are the CPP and EI rates for 2016?


Enjoy a cup of tea while you browse through these rates. I've put together a chart to show you the comparable payroll tax components between the U.S. and Canada.




GOOD TO KNOW

2017 W2 Deadline - Monday, January 31, 2017

2017 T4 Deadline - Monday, February 28, 2017




Canada


U.S.


Payroll Tax

Canada Pension Plan (CPP)


Social Security Tax (SST)*


Medicare

Provincial Health Insurance


Hospital Insurance (HI)*


UnEmployment Insurance

Employment Insurance (EI)


Federal Unemployment Tax Act (FUTA)


*SST and HI together are known as FICA

What is the U.S. employer's and employee's Social Security tax rate for 2017?

EE = employee's portion of FICA, ER = employer's portion of FICA

2017 FICA EE Rate ER Rate EE+ER Rate Wage Base Limit Maximum Tax
Social Security6.2%6.2%12.4%*$127,200$7,866.40 EE $7,866.40 ER
Medicare1.45%1.45%2.9%$200,000$2,900 EE $2,900 ER
Medicare2.35%1.45%3.8%over $200,000no limit

5 Payroll Tax Mistakes To Avoid

You may want to read the US Small Business Administration article by Barbara Weltman titled 5 Payroll Tax Mistakes to Avoid. It discusses best protection strategies for:

  1. Misclassifying workers
  2. Not using an accountable plan for employee reimbursements
  3. Failing to keep payroll records
  4. Choosing to pay creditors before the IRS
  5. Failing to monitor payroll company activities

FICA (Federal Insurance Contributions Act) establishes two taxes on self-employed workers, employers, and employees.

     ✔ The first employee payroll tax known as the Social Security tax is for Old Age, Survivors and Disability Insurance (OASDI).
     ✔ The second employee payroll tax known as the Medicare tax is for Hospital Insurance (HI).

Business owners (YOU) are responsible for:

  1. Withholding the employee's social security tax from an employee's pay check;
  2. Calculating the employer's social security tax;
  3. Remitting the mandatory payroll tax deposit.
  4. Submitting your quarterly employer return IRS Form 941.
  5. Submitting IRS Form 4070 which is your monthly reporting of tips.

Find historical rates and commentary on these employee payroll tax deductions.

You can attend a free webinar by the SBA (U.S. Small Business Administration) on the Affordable Care Act to learn the basics and what it means for you as an employer.




What are the CPP (Canada Pension Plan) and EI (Employment Insurance) rates for 2016?

CPP Rates 2016
Employee Contribution Rate4.95%
Employer Contribution Rate4.95%
Basic Exemption$3,500
Maximum Pensionable Earnings$54,900
Maximum Contribution$2,544.30
Maximum Monthly Contribution$212.03
EI Rates 2016
Employee Contribution Rate1.88%
1.60% with credit*
Employer Contribution Rate2.632%
2.24% with credit
Maximum Insurable Earnings$50,800
Maximum Contribution$955.04

*small business job credit announced September 12, 2014 which is different than the hiring credit


CRA (Canada Revenue Agency) and Social Development Canada share administration responsibilities of payroll taxes on self-employed individuals, employers, and employees.

     ✔ Canada Pension Plan (CPP) contributions are shared by employers and employees. Self-employed individuals pay both the employee and employer portions.
     ✔ Employment Insurance (EI) premiums are shared by employers and employees and set by The Canada Employment Insurance Finance Board (CEIFB). Self-employed individuals do not pay EI premiums unless they have opted into the volunteer EI program.
     ✔ Medical premiums are administered provincially.

5 Payroll Mistakes to Avoid

PaySavvy's article by James Plett titled 5 Costly Payroll Mistakes to Avoid discusses:

  1. Arbitrarily deducting money
  2. Not deducting CPP or EI
  3. Not recording taxable benefits
  4. Treating employees like contractors
  5. Not remitting on time

Business owners (YOU) are responsible for:

  1. Opening a payroll account with CRA;
  2. Obtaining information from employees through the TD1 Form;
  3. Withholding the employee's federal CPP contributions, EI premiums and income tax withholdings from an employee's pay cheque;
  4. Withholding provincial medical premiums if you are based in BC, Alberta or Ontario;
  5. Calculating the employer's share of payroll taxes;
  6. Remitting the mandatory source deductions via PD7A Form each reporting period (assigned when you open your account with CRA);
  7. Paying provincially administered workers compensation premiums;
  8. Issuing T4 and T4A slips annually; and
  9. Submitting your annual information returns to CRA for T4 and T4A slips issued.

Find historical rates and commentary on these payroll tax deductions.




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