Get T4ps

Similar to a 401(k), a profit-sharing plan enables you to save for retirement on a tax-deferred basis. The funds that go into your profit-sharing plan won't incur any tax as they increase through underlying investments. You'll only have to pay income tax when cashing out your profit-sharing plan.

Employers make profit-sharing contributions to the plan on behalf of their employees, and these contributions are not taxable income to the employee. The contributions grow tax-deferred, just like contributions to a 401(k) plan.

As the T4PS is a separate slip from your T4, it needs to be reported separately on your tax return. The income from Box 35 of theT4PS is entered on Line 104 - Other Employment Income of the T1 General tax return, whereas the amounts from Box 14 of the T4 show up on Line 101.

Profit sharing is a type of pre-tax contribution plan for employees that gives workers a certain amount of a company's profits.

If you, the employer, make contributions to a profit sharing plan, you can deduct up to 25 percent of the compensation paid during the taxable year to all participants. Your contributions to the plan can either be fully vested (nonforfeitable) when made or they can vest over time ing to a vesting schedule.

TYPES OF PROFIT-SHARING PLANS The first takes the form of cash bonuses under which employees receive a profit-sharing distribution at the end of the year. The main drawback to cash distribution plans is that this income is immediately subject to income tax.

To the IRS, profit-sharing distributions are regarded as ordinary income. The tax rate that applies to your ordinary income is your marginal rate, meaning the tax on the “last dollar” of your annual income.

Why are bonuses are taxed so high? Bonuses are taxed heavily because of what's called "supplemental income." Although all of your earned dollars are equal at tax time, when bonuses are issued, they're considered supplemental income by the IRS and held to a higher withholding rate.