Retiring Allowances and E.I. Reimbursements: How Many Times Do You Have to Withhold?
Date:
November 18 2004
Joel Nitikman presented a paper on “Tax Issues of Interest to Employment Lawyers” at the inaugural conference of the Canadian Association of Counsel to Employers (“CACE”) held in Banff, Alberta on September 23-25, 2004. At the end of Joe’s talk, he was asked this question from the floor: Suppose an employee was dismissed on January 1, 2004. He or she collects employment insurance under the Employment Insurance Act (Canada) (the “EIA”) of $20,000 between January 1 – June 30, 2004. The unit of the federal government which oversees the EIA, Human Resources and Skills Development Canada (“HR”), withholds $5,000 as income tax from the $20,000 and pays the employee a net amount of $15,000. On July 1, 2004, the employer agrees to pay the employee $50,000, as a wrongful dismissal settlement. How is the income tax withholding calculated on the $50,000? Is the withholding based on the gross amount of $50,000, or is the withholding based on the net amount of $30,000, given that $5,000 has already been withheld from $20,000?
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