September 19, 2014

in Uncategorized

LTD and STD benefits taxed at source in 2015

Carriers are updating how taxable long-term and short-term disability benefits are administered to align with new requirements outlined by the Canada Revenue Agency (CRA). The new requirements are mandated to be in effect January 1, 2015, but some carriers are deducting sooner than that depending on whether the claimants are existing or new.

In the past, plan sponsors or plan members could select other options for withholding tax such as a specific amount or percentage, or defer them until annual taxes are filed. The CRA now requires that disability benefits paid from these plans be taxed at the source using payroll tax tables and basic personal exemption amounts.

Plan members receiving taxable disability benefits who do not have income tax deducted at the source may begin seeing a lower net disability benefit payment as a result of the tax withholding.  If a member selected a flat tax amount or percentage the withholding tax will be changed to align with the applicable payroll tax tables. This may result in a change to the member’s benefit payments.

Your Accompass consultant will give you insights into how specific carriers are implementing the change.

For Quebec plan members, provincial income tax is already being deducted from the benefit payments.