What Impacts My Take Home Pay?Brian Jang ON January 14, 2019
So, you have just started a new job and, having negotiated a good salary for yourself, you are anxious to see just how much you will be taking home with each paycheck. Most people tend not to know exactly what their earnings will be until that first payday, when they see what deductions are made, and sometimes the amount of take-home pay comes as a shock.
Your personal tax situation informs the amount of taxes or contributions withheld, which may result in you receiving less pay than a fellow worker who is ostensibly receiving the same salary.
Let’s take a look at what might impact your pay in order to have a clearer view of where your money is going.
Federal and Provincial Taxes
Your federal and provincial taxes are determined when you complete your Personal Tax Credits Return, for either a new or current employer. You should be receiving both federal and provincial forms to complete when you are hired by a new employer, or when there is a change to the amounts of your federal or provincial tax credits.
At any time that you have a change in your situation, you should be sure to complete a new form for your employer. Do this as quickly as possible. If you find yourself with additional employment at a second employer, you may want to increase the amount of taxes deducted form your pay in order to reduce the amount owed at the end of the year. Complete a federal form in order to make these changes.
Be aware that the form is changed by the CRA on an annual basis, so be sure to check that you are filling in the correct one for the current year.
Contributions to CPP and EI
When thinking of deductions to our pay, most of us think immediately and solely of taxes, but there are also the contributions to the Canada Pension Plan and Employment Insurance that need to be made.
The purpose of the CPP is to provide you with basic benefits in the event that you, as a contributor, retire, or become disabled in some way. It also provides benefits to your survivors should you die. EI on the other hand, is intended as temporary financial assistance for when you become unemployed or are upgrading your skills. Other occasions where you may receive EI include:
- extended illness
- when caring for a newborn or adopted child
- when providing care to a seriously ill family member than is at risk of dying
Your employer is responsible for determining the amount of CPP and EI that need to be deducted from your pay, using CRA-approved calculation tools in order to do so: annual CPP and EI contribution rates and maximums. These deductions are remitted to us through payroll remittances, along with your employer’s share of the CPP and EI.
Certain individuals, such as those who own their corporation, may be considered exempt from EI and do not participate in regular EI contributions. They do, however, participate in a separate program.
When trying to determine why your net pay is lower than expected, consider whether you have other deductions that you may be forgetting. These can include union dues, benefits, donations, garnishments, or even your RRSP contributions.
Everyone’s situation is unique, so be sure to review all the deductions being made when you find yourself wondering why your take-home pay is less than expected.
- How to Charge Provincial Sales Taxes on Online Sales
- Why You Should Rethink Your Accounting Strategy
- What Can Happen If You Submit Your Taxes After the Deadline?
- What Are the Tax Deductions for the Self-Employed?
- When Are Your Business Taxes Are Due?