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Income Tax - Explained
Employees of all ages should understand how their earnings work and be able to estimate how much of their pay they will take home. These are the basics…
When you work, the government takes a portion of your pay as income tax. This money is used to pay for things ranging from benefits for seniors and the unemployed, provincial health costs, and support for colleges and universities, roads, transit, and much more.
Income tax is for both your province and for Canada. If you earn more than $227.00 per week, income tax will be deducted from your pay. In Ontario, at minimum wage, this means you would have to work an average of more than 25 hours per week.
Your employer takes the income tax off your pay and gives it to the government. They take it off your “gross” pay, which is the amount you earned in total for that pay period, and give you the “net” pay, which is what is left after they take their deductions.
If you earn more than $227.00 per week, these are the kinds of deductions you can expect:
Federal Tax - to pay for all Canada’s programs and debt
Provincial Tax - to pay for all your Provincial programs and debt
Employment Insurance (EI) Premiums – pays you a benefit if you become unemployed
Canada Pension Plan (CPP) Premiums – you collect benefits after age 65 or when you retire
Ontario Health (OH) Premium – used by Ontario to pay part of the costs of healthcare
Group Health Benefit Premiums – this is often offered by your employer to help you pay for medical prescriptions, trips to the dentist, and eyeglasses, to name a few.
***You will not pay all of these as a student working part-time***
On earnings of $300.00 per week, you would pay:
- Federal Tax: $10.35
- Provincial Tax (Ontario): $5.85
- EI Premiums: $5.19
- CPP Premiums: You do not pay this until you are over age 18, and then only if you have earnings of more than $3,500.00 in a year. It is calculated at 4.95%.
- OH Premium: You do not pay this directly. It appears on your income tax return and is collected through the income tax system.
- Group Health: Often, part-time employees do not qualify for Group Health Benefits. Plus, you may be covered by benefits your parents have for your whole family if you are under 18 or still in school. If you do not need these benefits, you can ask to be removed from them.
So, a gross pay of $300 would give you a net pay of $278.61 less any further amounts for Group Health Insurance.
Also, if you work more hours during the summer and during school holidays and average more than 25 hours per week for the year, you may not “qualify” to pay tax on each paycheque, but if by the end of the year you do, it can leave you owing the government a small amount of money. If this is the case for you, put a few dollars off each paycheque (say $10 per pay) in your Credit Union savings account so that you can pay the amount owing when it’s assessed
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