Accurate tax filing is crucial for both employees and employers in Canada. A simple mistake on the T4 slip can lead to unwarranted audits or penalties. One place where mistakes usually occur is T4 Box 85, which is employer-paid private health service plan premiums. Understanding what Box 85 is on the T4 and reporting it accordingly will help companies avoid compliance issues. This guide will address how to complete T4 Box 85 accurately, avoid common mistakes, and provide tips on avoiding mistakes.
What is T4 Box 85, and why is it so significant?
T4 Box 85 is a subsection on the T4 statement that Canada uses to report employer-sponsored premiums for private health services plans. Box 85 is essential as it aids employees in assessing whether they must report taxable benefits. If premiums are incorrectly reported or missing, employees report less taxable income, resulting in tax reassessment.
The Canada Revenue Agency (CRA) prefers employers to report all the sums paid for dental, vision, medical, or prescription drug benefits. However, some types of insurance policies, such as disability or life insurance, are not required to be reported in T4 Box 85.
Typical Errors When Reporting Box 85 T4
Even experienced accountants make mistakes in filling out T4 Box 85. A few of the most frequent errors and how to prevent them are as follows:
1. Misstatement of Amount in Box 85 of T4
One of the most frequent mistakes is incorrect completion of the amount in T4 Box 85. Certain employers offer benefits that are not private health services plans, such as:
- Life insurance premiums
- Disability insurance premiums
- Critical illness insurance
To prevent doing this, double-check your group benefits policy to see what premiums need to be reported.
2. Failure to Report Employer Contributions
If the employer pays part or all of the premium for medical insurance, it must report this on T4 Box 85. However, some companies incorrectly believe they must report only the employees’ contributions and, therefore, file partially.
3. Lack of Distinguishing Taxable and Non-Taxable Benefits
There are taxable and nontaxable health benefits. A good example of a taxable benefit would be if the workers were reimbursed for medical bills instead of being provided with an organized health insurance scheme. To report correctly, employers can look at the T4 boxes explained on the CRA website.
How to Fix T4 Box 85 Errors
If an error is discovered after submitting the T4 statement in Canada, the employers must correct it immediately to avoid tax problems. This is how to correct it:
- Submit a revised T4 slip: The new information is recorded by the employer in a fresh T4.
- Return a T4 Summary fillable form: This fillable summary form allows businesses to give the CRA current payroll information.
- Notify affected employees: If the errors were in T4 Box 85, employees must be notified so that they can correct their tax returns according to the amendments.
Learning T4 Box 45 Code 1
Another significant tax reporting category is T4 Box 45 Code 1, which deals with employer-paid disability insurance premiums. In contrast to T4 Box 85, which deals with health-related benefits, T4 Box 45 deals with instances where an employer offers income protection through disability insurance.
Employers must correctly classify these benefits to prevent tax reporting errors. The CRA sets the rules for reporting what is to be reported in T4 Box 45 Code 1 to enable employees to calculate taxable income correctly.
Best Practices for Employers to Prevent Mistakes
To reduce filing errors in T4 Box 85, the employers should implement the following best practices:
1. Conduct a Benefit Plan Review.
Before tax time, review your company’s benefit plan so that you are aware of what premiums need to be disclosed in T4 Box 85.
2. Use Payroll Software
Computerized payroll software for tax calculation can minimize the risk of human error when completing T4 slips. Most payroll software is CRA-compliant to keep you up to date.
3. Consult a Tax Specialist
If you don’t know how to determine what is Box 85 on T4, call a small business tax accountant in Mississauga. Tax experts can guide you and will make sure all the premiums paid by the employer are correctly reported.
4. Double-Check Before Submission
Companies should cross-check all T4 details before filing with the CRA. A simple reconciliation can avoid mismatches that can precipitate tax penalties.
How to Avoid Mistakes on Box 85 of the T4 Slip for 2021 and Later
Tax law does change, and corporations must stay current with CRA legislation for T4 Box 85. The CRA does update reporting requirements from time to time, so tax policy must be updated yearly to be compliant.
The HR and payroll staff should be trained by the employers on how to avoid mistakes on Box 85 of the T4 slip 2021 and in the future. Regular training sessions can minimize frequent reporting errors.
Final Thoughts
Accurate reporting of employer-paid health premiums on T4 Box 85 is crucial to employers and employees alike. This is necessary to prevent tax penalties or additional audits. Employers must examine their group benefits plans, identify taxable and non-taxable benefits, and consult a tax professional when needed.By following best practices and remaining current with CRA policies, businesses can avoid errors and stay in compliance with Canadian taxation regulations. If you need assistance for T4 statement Canada, you can actually hire a small business tax accountant in Mississauga so as to obtain accuracy and compliance.