When you agree to work for someone, one of the important discussions is around how much you are going to make. It’s hard to tell at that point what the difference will be between your salary or hourly wage and how much you are actually going to be able to take home once taxes have been removed from the remuneration.
Depending on your personal tax situation, the amount of taxes and contributions withheld from your pay may vary from you to someone else you work with earning the same salary.
Let’s have a look at what impacts your pay.
These taxes and contributions are determined when you complete your requisite Form TD1, Personal Tax Credits Return, for your new or existing employer. Your employer should be giving you a TD1 (Federal) form and a TD1ON (Provincial – each province has its own) to complete upon starting a new job or if there are changes to your federal or provincial tax credit amounts.
As soon as there are changes in your situation, make sure you complete a new form for your employer as soon as possible. For example, if you have employment elsewhere and would like more taxes deducted of your pay so that you will have to pay less at the end of the year, that would be done through this form.
As well, the CRA changes the form every year, so make sure that you are using the right version for the correct calendar year.
CPP & EI Contributions
Federal tax isn’t the only thing we have to pay on our salaries, we also must contribute into the Canada Pension Plan (CPP) and Employment Insurance (EI) premiums. The CPP provides basic benefits when you, a contributor to the plan, become disabled or retires. In the event of your death, the plan provides benefits to your survivors. EI provides you with temporary financial assistance while unemployed and looking for work or if you’re upgrading your skills. You may receive EI assistance in either of the following situations:
- caring for a newborn or adopted child
- caring for a seriously ill family member with a significant risk of death
Your employer calculates how much CPP and EI to deduct from your pay, using CRA approved calculation tools, the annual CPP and EI contribution rates and maximums.
These deductions are remitted to us, along with your employer’s share of CPP and EI, through payroll remittances.
Employees working in Quebec are required to pay the Québec Parental Insurance Plan (QPIP) premium and you pay a reduced rate for EI premiums.
Some individuals, like those that own their corporation and are on their own payroll, do not participate in the regular EI contributions – they are considered to be EI Exempt, and there is a separate program for them.
Something else to keep in mind is that you may have other deductions from your pay, either before taxes or after taxes, some of the most common being: RRSP contributions, union dues, benefits, donations or garnishments
Charlotte earns $50,000/year living and working in Ontario. When Charlotte completed both her TD1 and TD1ON forms, she had no additional tax credits to add to the basic personal amount.
Charlotte’s total claim amount (the total of all the tax credits) is used to determine her federal and provincial tax withholdings.
Charlotte’s gross insurable earnings (before taxes are deducted pay) are bi-weekly (26 times a year). To calculate her gross pay, we divide her gross salary by the number of pay periods, or $50,000 / 26 which is $1,923.08.
That gross amount then has taxes deducted from it, so Charlotte will see the following on her pay cheque:
Gross Pay $1,923.08
Federal / Provincial Taxes $307.67
Net Pay $1,494.96
Once Charlotte reaches the maximum on her contributions for CPP and EI, see current rates, her employer will no longer deduct it from her pay and her net pay will go up. She is not being paid more, but with fewer deductions she will see more cash in her bank account.
If you have more tax credits than Charlotte when you fill out your TD1 forms, the Federal/Provincial tax amounts you pay may decrease, but not the CPP or EI portions.
If you are unsure about anything on your pay cheque or paystub, it’s best to speak to your human resource or payroll personnel where you work.
If you want a quick estimate of your deductions, or want to play around with the figures, feel free to check out the TurboTax Canada Income Tax Calculator.