Understanding your income
If you live/work in Canada, the amount that goes into your pocket each money depends on your province of residence.
Have you ever wondered why the sky is blue? Why we get rainbows when it’s about to rain (is what they say true that you can’t reach the end of a rainbow because it actually forms a circle?). Here, at Solooble, we are inquisitive people, and today we answer the question; how much do I truly earn? Beware, math to come, however, there’s light at the end of that dark tunnel.
So, how much is it?
If you live/work in Canada, the amount that goes into your pocket each month depends on your province of residence. The total tax everyone pays on their income can be broken down to Federal tax, Provincial tax, and CPP/EI premiums (that is, Canadian Pension Plan and Employment Insurance premiums).
Let’s slow down here: The government takes a piece out of a person’s income in two-folds, however, the Canadian tax system is described as progressive. This means low-income earners are taxed less than high-income earners.
This goes to the federal government to fund the federal government. The percentage taken varies depending on your tax bracket - this is defined by how much you make annually; smaller annual income, smaller tax rate - but stays the same across provinces.
Figuring out the correct rates for you can leave you ready to pull out your hair. Take a look the actual federal tax rates for 2020 pulled from canada.ca:
- 15% on the first $48,535 of taxable income, plus
- 20.5% on the next $48,534 of taxable income (on the portion of taxable income over 48,535 up to $97,069), plus
- 26% on the next $53,404 of taxable income (on the portion of taxable income over $97,069 up to $150,473), plus
- 29% on the next $63,895 of taxable income (on the portion of taxable income over 150,473 up to $214,368), plus
- 33% of taxable income over $214,368
This means if you earn $50,000 a year, your federal tax rate would be 15% on the first $48,535 and 20.5% on the next $1,465 simply because $48,535 plus $1,465 is $50,000. There are tax credits provided by the government that reduce the amount owed; queue another long list that might make your eyes water. 🤕
The provincial tax rate is determined by each province, so you are likely to pay a different rate on the same income amount depending on where you live. Here’s a link to yet another hard-to-read table that outlines each province's income tax rate for 2020. Something that may be of interest to realize is how your province of residence ranks compared to others.
For example, if you live in Alberta with an annual salary of $50,000, your provincial tax rate might be $2,740. If you lived in Ontario, it might be $2,627, however, move to Manitoba and your rate might jump to $4,310. 🤷🏽♀️
So, how is this helpful?
It could be helpful to think about how much you’ll end up keeping when deciding to work a higher paying job. A pay increase might not be your primary focus, but knowing how much would end up in your pocket bi-weekly might help inform your decision. There are many income tax calculators online that would save you some time and much head-scratching.
A quick google search shows that a person living in British Columbia going from $50,000 to $60,000 a year would see around $280 more in their bi-weekly paycheck.
There. Happy adulting.