Did you know that you can increase your income with T1213 Tax Form? Not many single mothers know how to leverage this simple benefit to their financial advantage. Learn what the Form T1213 is and how it can help you get a substantially bigger paycheck every month.
As the Canadian Revenue Agency defines it, Form T1213 is a Request to Reduce Tax Deductions At Source in a specific tax year. In other words, this form makes it possible for the Canadian tax payers to reduce monthly income tax if they have considerable ongoing expenses. Just like with many other government benefits, no one will tell you about this form unless you either find it accidentally or someone financially savvy tells you about it. In my case, I found this form accidentally. Had I known about it a few years ago, my savings would be considerably higher by now! That’s why I simply had to create a post about the benefits of using this form. Single mothers need to understand and utilize this little-known benefit to increase their current income.
If you are in the United States, you can reference this IRS page for the tax deduction at source forms.
Before you consider filling out this form to reduce monthly tax deductions on your income, consider a few important factors:
- Ask yourself what you could do with the extra monthly income to improve your financial health?
- Reflect on your current spending habits and ability to exercise a degree of financial discipline.
The reason why honestly answering these questions is important is because it’s possible to actually hinder your finances with the T1213 form if you don’t know what you are doing. You can increase your income with T1213 Form only if you are clear on your financial objectives, and have a financial plan to make them happen. First, start by tracking your finances in your personal budget. If you don’t have one, download a free budget template I use myself.
You also need to be very clear on your ongoing expenses that might qualify you for this tax deduction. The good news is that most single mothers should be able to get approved. Some of the expenses that can make you qualify are ongoing childcare expenses, legal expenses, employment expenses, medical expenses, and your RRSP contributions. For the full list, please see the bottom of the T1213 form.
You will need to indicate the amount you expect to pay for each expense in a given tax year. The CRA will then use its own formula to calculate the tax amount that can be reduced on your paycheck. They will indicate this amount in a letter of approval, and send it to you by regular mail.
It took me about 3 weeks to get approved under T1213 (tip: fax your application instead of mailing it to get a faster response). After you get the letter of approval from the CRA, provide a copy to your employer’s accounting department. They will adjust your next paycheck to reflect the reduced tax rate, and you will see a substantial boost in your monthly income going forward.
If this is your first year applying to reduce tax deduction at source, I suggest being conservative with the expenses you are claiming. If you over-estimate your yearly expenses, you will actually end up owing money to the CRA when the tax period kicks in. This is not something to take lightly, and owing tax money can turn out to be a very expensive mistake. To prevent this from happening, choose one category of expenses to start with. For example, if you have ongoing childcare, legal, and medical expenses, apply only under one category when filling out your T1213. This will prevent you from overestimating your actual expenses.
That being said, you don’t need to be afraid to apply to reduce your monthly tax with T1213. After all, it’s your money, and you can invest or save it every month. If you don’t, you are basically extending an interest-free loan to the government every year, instead of collecting the dividends on your income. You can also reduce your income tax even further by using these savings to invest in your RRSPs. To learn how to do this, watch this video that explains it quite well.
A bit of helpful information I received from the CRA office:
- Plan to submit your T1213 to the CRA in November of each year. This will ensure your employer will be able to set up your tax deductions before the new year start.
- Fax your filled out Form to the CRA. You will get a faster response.
- You can apply to reduce your income tax at source at any point during the year. So if you found this article in the middle of the year, go ahead and still apply! You will still be able to increase your monthly income for the rest of the year.
I hope you will take advantage of this financial strategy that will increase your income with T1213 Form. Don’t overestimate your expenses, and be clear on how you plan to use this extra money to improve your financial situation. Consider re-investing your new savings in RRSP or TFSA accounts.