How To Be A Successful Adult: Understanding Your Paycheck
How To Be A Successful Adult: Understanding Your Paycheck
This seems like a topic that shouldn’t be needed. Your paycheck is quite simply your pay for performing your job at your place of employment. You have a total at the bottom that tells you how much money you’re getting. What’s so hard about that? Well I consistently see people who have received paychecks for decades tell people incorrectly how taxes work and many other mistakes. On top of that there’s sometimes dozens of additional lines that add and subtract money. There could be anything like health benefits, dental, life insurance, pension, GRRSP, union dues, tool allowance, and a hell of a lot more.
Now before we begin I have to say that not all paychecks are the same, the majority of them are quite different. These topics I discuss will be on your paycheck but might be denoted differently then other paychecks you might see.
Probably the simplest thing on your paycheck: your hours worked and rate of pay. These will usually be paired together in a row. Often you’ll see a third number with them and it’s just the total when you multiply them together. This total is usually called your “Net income”. Which is your income before taxes and other deductions.
|$ 25.87||37.5||$ 970.13|
How does income tax work?
Income tax is constant for ALL paychecks. No matter where you are in Canada you will have to pay income tax. Canadians’ income tax is broken down into two separate parts, Federal income tax and Provincial income tax.
The biggest issue I’ve come across with income taxes is the EXTREMELY popular notion that working more overtime gives you diminishing returns on the money you earn. A LOT of people think that once they cross the upper limit (of the income range in the following tables) they end up paying MORE taxes on ALL of the money they earn. This is just not true, once you cross the limit, you only pay the higher taxes on the money earned OVER that limit. We’ll dive into this with some examples below.
Federal income tax is the same across the country because it is mandated by the Federal(Canadian) government. This is the percentage of your pay that goes to the Canadian government for their fiscal budget. There’s different levels of Federal income tax which depend upon the level of income you bring in.
|Federal Income Taxes||Income Range|
|Rates||Lower limit||Upper limit|
|15.00%||$ 0.01||$ 45,282.00|
|20.50%||$ 45,282.01||$ 90,563.00|
|26.00%||$ 90,563.01||$ 140,388.00|
|29.00%||$ 140,388.01||$ 200,000.00|
Basically, all income that falls between the income range state is taxed at the rate to the left. So for example, say you earn 80,000/year(congratulations!). That total falls within the second income range. So you end up paying 15% on the first $45,282 of your income and 20.5% on the remaining $34,717.99. This works out to $6,792.30 from the 15% on the first range and another $7,117.19 from the 20.5% on the second range.
Unfortunately, Federal income taxes aren’t the only income taxes you’ll have to pay. Provincial income tax, as you can probably guess, is imposed by each province for people that reside in that province. This portion of your income tax will go to the Provincial government for their budgeting purposes. Each province has different rates on different levels of income just like the Federal income taxes, the only difference is the dollar value of the ranges. These ranges are as follows:
|Province / Territory||Rates||Lower limit||Upper limit|
|Newfoundland and Labrador||8.20%||$ 0.01||$ 35,148.00|
|13.50%||$ 35,148.01||$ 70,295.00|
|14.55%||$ 70,295.01||$ 125,500.00|
|15.80%||$ 125,500.01||$ 175,700.00|
|Prince Edward Island||9.80%||$ 0.01||$ 31,984.00|
|13.80%||$ 31,984.01||$ 63,969.00|
|Nova Scotia||8.79%||$ 0.01||$ 29,590.00|
|14.95%||$ 29,590.01||$ 59,180.00|
|16.67%||$ 59,180.01||$ 93,000.00|
|17.50%||$ 93,000.01||$ 150,000.00|
|New Brunswick||9.68%||$ 0.01||$ 40,492.00|
|14.82%||$ 40,492.01||$ 80,985.00|
|16.52%||$ 80,985.01||$ 131,664.00|
|17.84%||$ 131,664.01||$ 150,000.00|
|Quebec||16.00%||$ 0.01||$ 42,390.00|
|20.00%||$ 42,390.01||$ 84,780.00|
|24.00%||$ 84,780.01||$ 103,150.00|
|Ontario||5.05%||$ 0.01||$ 41,536.00|
|9.15%||$ 41,536.01||$ 83,075.00|
|11.16%||$ 83,075.01||$ 150,000.00|
|12.16%||$ 150,000.01||$ 220,000.00|
|Manitoba||10.80%||$ 0.01||$ 31,000.00|
|12.75%||$ 31,000.01||$ 67,000.00|
|Saskatchewan||11.00%||$ 0.01||$ 44,601.00|
|13.00%||$ 44,601.01||$ 127,430.00|
|Alberta||10.00%||$ 0.01||$ 125,000.00|
|12.00%||$ 125,000.01||$ 150,000.00|
|13.00%||$ 150,000.01||$ 200,000.00|
|14.00%||$ 200,000.01||$ 300,000.00|
|British Columbia||5.06%||$ 0.01||$ 38,210.00|
|7.70%||$ 38,210.01||$ 76,421.00|
|10.50%||$ 76,421.01||$ 87,741.00|
|12.29%||$ 87,741.01||$ 106,543.00|
|Yukon||6.40%||$ 0.01||$ 45,282.00|
|9.00%||$ 45,282.01||$ 90,563.00|
|10.90%||$ 90,563.01||$ 140,388.00|
|12.80%||$ 140,388.01||$ 500,000.00|
|Northwest Territories||5.90%||$ 0.01||$ 41,011.00|
|8.60%||$ 41,011.01||$ 82,024.00|
|12.20%||$ 82,024.01||$ 133,353.00|
|Nunavut||4.00%||$ 0.01||$ 43,176.00|
|7.00%||$ 43,176.01||$ 86,351.00|
|9.00%||$ 86,351.01||$ 140,388.00|
Now if we take the same example as the Federal tax structure and say you’re earning $80,000 per year but now we’re going to say you live in Nova Scotia. On the first $29,590 you’ll owe 8.79%. On your second $29,590 you earn you’ll owe a bit more tax at 14.95%. Then on your remaining $20,820 you’ll owe 16.67% to provincial taxes. So to break that down you’ll be paying $2,600.96 for the first range, $4,423.71 for the second range and $3,470.69 on the last range of income. This is a grand total of $10,495.36 in taxes to the provincial government.
Combining the two examples from above, you can see that someone who earns $80,000 a year in Nova Scotia could be paying as much as $24,404.85 in taxes each year. Luckily that doesn’t have to be the case. There’s numerous tax credits and saving strategies some which I’ve outlined in a previous post. Unfortunately we don’t have the time or space to go through every tax situation here. There’s 300+ page books dedicated to that sort of thing. You can look them all up depending on where you live on the CRA website. If you have any questions about them feel free to contact me.
Benefits and more!
I think we’ve straighten out the income tax another section of your paycheck let’s move on to a much different area. Benefits at every company are going to be slightly different. They’ll range from nothing at all to full dental/eye care/pension/life insurance/etc. It’s near impossible to be able to outline every option and what they do. I’ll make a list of things that I’ve seen offered at previous and current companies and give a brief explanation of them.
The biggest thing to remember with these is that that may be listed on your pay as a deduction, this is usually a co-pay situation. Co-pay is when your employer pays for a part of your benefits and you pay the other part. It may be possible that you could opt out of if you feel you won’t take advantage of these benefits. Some companies will pay for all of the benefits. It will still often be listed on your paycheck to ensure you know how much money they throw your way!
Alright, onto the list!
Remember, all of these could be abbreviated in some way on the pay stub
- Life insurance – Insurance if you were to die while employed with the company, not just at work
- Accidental death and dismemberment – Same as life insurance but also has a component to cover losing limbs while at work.
- Dental – They’ll pay a portion or all of your dental work. Usually has a dollar value limit.
- Long term disability – If you became sick or injured and had to go on long term disability, this is the insurance the company has to pay out over that period.
- Health and wellness spending – Sometimes companies will give you a few hundred dollars each year to spend on health or wellness activities. This could be anything from gym memberships to massages, or fitness equipment to dietary consulting.
- RRSP/GRRSP – Registered Retirement Saving Plan/Group Registered Retirement Saving Plan contributions. Often companies will match employees contributions to a RRSP/GRRSP. This is free money, make sure you take advantage of it.
- Cell phone allowance – Some companies will give a flat rate each month for using your own cell phone as opposed to providing you with one.
- Vehicle allowance – Same as the cell phone allowance except I hope MUCH higher because it’s for a car.
Again, that’s only a few benefits that I’ve seen offered in the past from different companies. If you have something on your pay stub that isn’t clear after reading this I’d suggest you ask your boss. They can help you out or direct you to someone who can. At no point should you not understand exactly what’s going on with your paycheck.