I worked only 3 months this year - why did I pay so much income tax?

When payroll deductions are calculated, your salary or wages for the payroll period are annualized to determine the income tax rate.  As a result, you are paying income tax at a rate that assumes you will be earning the same amount per pay period for a year.  If you worked full time for a few months of the year, and did not work the rest of the year, you will be paying too much tax.  When you file your income tax return for the year, if you have no other income, you should get a refund.  Use the Canadian Tax Calculator for your province or territory to estimate the tax refund that you will receive.

If you know that your total income for the year will be less than your total personal tax credits on the TD1 form, you can check the box on page 2 of the form, and your employer will not deduct tax from your earnings.

Every employee should fill out both federal and provincial/territorial TD1 personal tax credits forms for their employer.  See our TD1 Forms article for more information, and for a link to the TD1 forms on the Canada Revenue Agency (CRA) website.

Tax tip:  Make sure you fill out the TD1 form if you are entitled to more tax credits than just the basic personal exemption.

Revised: November 18, 2009