Regular Payments, Special Payments and How They Are Taxed Differently When Paid

Updated: Jul 29, 2020

Not all payments receive the same tax treatment, always ensure you use the appropriate method when calculating withholdings. Salary, wages, overtime, vacation taken, and allowances are examples of a regular payment. Sometimes an irregular or special payment is made to an employee either outside or within the regular pay cycle.



Common examples include bonuses, vacation pay (when no time off was taken), retroactive payments, banked overtime, commission payments not regularly paid, and wages in lieu of notice.


Regular payments and special payments are considered employment income and require Canada Pension Plan (CPP) and Employment Insurance (EI) withholdings, but tax is calculated differently. When taxing regular payments, the regular tax deduction tables are used for the applicable pay frequency. When an employee receives a special payment, the bonus tax method is used.


The bonus tax method has several variations that depend on the type of payment being made. If an off-cycle payment is made, remember not to use the CPP exemption when calculating the withholding amount. Payroll can become very complicated. Always ask the right questions to ensure employees get paid accurately.


Please refer to this link from Canada Revenue Agency (CRA) for further explanation of the bonus tax method:

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/special-payments/bonuses-retroactive-pay-increases-irregular-amounts.html.


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