TD1X: commission pay taxed net of expenses, due by January 31

Who can file a TD1X, and when is it due?

An employee paid by commission, or by commission plus salary or wages, can fill out Form TD1X when they want you to account for their commission expenses in the tax you deduct. It's optional, and you use it together with the employee's TD1 to work out the tax canada.ca. The current version is TD1X E (26) canada.ca.

The deadlines come from subsection 107(2) of the Income Tax Regulations, which lets an employee paid commissions elect to file a prescribed form in addition to the TD1 laws-lois.justice.gc.ca. The election runs for a year, so a continuing employee who wants the adjustment again gives you a fresh TD1X by January 31.

The employee fills in commissions, salary or wages, total income, and expenses, which gives an estimated annual net income. If they weren't paid by commission last year, they estimate this year's figures. If they were paid by commission at any time last year or this year, they can use last year's income and the expenses from last year's T777, or this year's estimates canada.ca. The CRA's TD1X instructions exclude employees in Quebec and point them to Revenu Québec's commission rules canada.ca.

How payroll turns the TD1X into tax on each commission cheque

The January 2026 payroll formulas give commission employees their own version of annual taxable income: A = I1 minus F, F2, F5A, U1, HD, F1 and E. I1 is total remuneration for the year from the TD1X and E is the total commission expenses from the TD1X canada.ca.

So each payment carries the share of annual tax that G is of I1. If the result for A is negative, the tax on the payment is only L canada.ca. In the online calculator you enter total annual remuneration and total annual commission expenses exactly as the TD1X shows them, then the commission for the pay period and the days since the last payment canada.ca.

There is only one TD1X for federal, provincial and territorial purposes, so the same expenses reduce both T1 and T2 canada.ca.

A $15,000 expense claim cuts federal withholding by $3,075 a year

Your client sells for a distributor: $60,000 of expected commissions plus a $20,000 base salary for 2026. Their 2025 T777 showed $15,000 of commission expenses, and they give the employer a TD1X by January 31 using those figures. One payment in March is an $8,000 commission cheque.

The 20.5% applies because annual taxable income for payroll stays inside the second federal band ($58,523.01 to $117,045 for 2026) with or without the expenses canada.ca. Provincial tax drops on top of that. Without the TD1X, payroll would withhold as if the full $80,000 were taxable, and the $15,000 deduction would only come back as a refund after the 2026 return.

What the TD1X does not change: CPP, EI and the TD1

CPP for a commission employee is calculated on G, the gross payment, not on income net of expenses, with the $3,500 basic exemption prorated by the days since the last payment canada.ca. The T4001 applies the same day count when commissions are paid at irregular intervals canada.ca. EI is still based on insurable earnings. The TD1X only moves income tax.

The TD1 still sets the credits behind T1 and T2. If the employee never files a TD1X, or cancels one in writing, you deduct tax using the total claim amount on the TD1 canada.ca, and the payroll formulas calculate it the regular way canada.ca. See the 2026 TD1 amounts and claim codes for the credit side.

For an employee with no TD1X, commissions paid with salary are added to the salary for the tax calculation, and commissions that are paid periodically or fluctuate may go through the bonus method instead canada.ca.

Why a TD1X estimate can leave your client owing in April

The TD1X only estimates. The deduction itself is claimed on the T777 canada.ca, and paragraph 8(1)(f) of the Income Tax Act caps a salesperson's expenses at the commissions received in the year laws-lois.justice.gc.ca. The CRA leaves vehicle interest and CCA outside that cap canada.ca. If commissions fall short of the estimate, the TD1X will have cut withholding by more than the return allows, and the gap becomes a balance owing.

Those conditions are the CRA's list for commission employees in Guide T4044, which also says the T2200 isn't filed with the return canada.ca. The employer completes the T2200 so the employee can deduct employment expenses at all canada.ca; see T2200 employer instructions. When the cap bites, the salaried route has no commission ceiling but allows fewer kinds of expenses, and the T777 page runs both.

The employee signs the TD1X certifying the figures are correct and complete, and the form warns that a false statement is a serious offence canada.ca.