Welcome to the workforce! First jobs offer a glance into what you’d like to do (or not like to do) in the future. As well as gaining valuable experience, your new employment may also bring new tax obligations. Let’s review some basics for first time workers.
Income Tax 101
Income tax is based on a simple math equation. Subtract your deductions from your income, calculate income tax and deduct any tax credits. The result is the amount of tax you have due.
If you’ve had any income tax deducted throughout the year via payroll deduction, that amount is then subtracted from your tax due.
If you’ve had more tax deducted than what is due, you get a refund. If you haven’t had enough deducted, you owe. It’s really that simple.
If you’re a high school student with a part time job, your income level likely doesn’t require you to file a tax return. Every tax payer is allotted a basic credit – in 2018 it is $11,635 (provincial amounts vary) – so chances are your after-school gig didn’t earn you enough income to require a filing. It’s a good idea to file anyway for a few reasons:
- Your RRSP contribution limit begins when you record your earned income. It’s not a big selling point when you’re 17, but this extra contribution room may be very appreciated when you’re older. Start building your contribution limit early.
- If you’ve had income tax deducted from your weekly pay, there’s a good chance you’ll receive that amount as a refund. Most students don’t earn enough income to have any tax due.
Post-secondary students have even more reasons to file:
- In order to use your tuition credits in the future, you must record them on your return, even if you don’t use any of the credit this year.
- Your tax return is used to determine your eligibility for benefit programs such as the GST/HST credit, Ontario Trillium Benefit and the Alberta climate leadership adjustment rebate. Even if you aren’t expecting a refund, you may be eligible for these quarterly payments.
If you haven’t previously filed taxes and are filing your taxes for multiple years, best practice is to file the oldest one first. That will ensure that you get a credit for all your tuition in the future.
If you incurred certain expenses related to your first job, you may be entitled to a deduction at tax time. If you were required to use your car or purchase tools at your own expense as a condition of your employment, you should receive a form T777 from your employer. This form details exactly which types of expenses were required as part of your job. Other eligible employment expenses may include home office costs, parking, or travel expenses.
Depending upon your income level, you may have more credits than you need to lower your tax payable to zero. If this is the case, you might be able to save these amounts for the future, when you’ll be earning more money. Although tuition amounts must be applied as needed, other credits such as student loan interest and charitable donations can be saved up for up to five years and then used all at once when you need them.
For most first-time filers, especially students, a refund will result once all of the calculations are done. Thankfully the days of paper and pencil have been replaced by easy to use tax prep software. TurboTax makes it easy to get your taxes done right with versions tailored to your tax situation whether simple or complex. Whether you are looking for a simple free tax prep software, or one that includes extra guidance and step-by-step instructions, TurboTax is easy to use and guaranteed to get you your maximum refund.