Personal Finance

Personal Finance Topic #5: Paystubs and Income

Learning Goals & Success Criteria Learning Goals: • Differentiate between a pay stub and pay cheque • Explain/Describe the different parts of a pay stub • Calculate a person’s deductions, including income tax Success Criteria: • I can read a pay stub and describe its different parts • I can calculate a person’s net pay by finding out how much tax he/she will have to pay

Pay Cheque versus Paystub • Pay cheque: the money portion. You cash it or put it in the bank. • Paystub: The portion of your pay that you keep. It shows you the calculation of how much you get paid

Task: • On a computer and without using the internet, create a pay stub that you would receive under the following circumstances: • You just completed your arts degree so you work for McDonalds • You work ten hours per week • You get paid every two weeks • You get paid today • You make $10 per hour • Any other information that you need, you may make up or estimate.

Pay Stub Definitions • Gross Pay: The amount an employee gets paid before deductions (income tax, CPP, EI, etc.) • Vacation Pay: By law, employers must pay their employees 4% extra for vacation pay. • Deductions: • Income tax: Both the federal and provincial governments take earned income away from Canadians in a percentage based on their total gross income. This deduction is evenly distributed throughout the year • CPP: Canadian Pension Plan – the government collects 4.95% of gross income per pay cheque to save for Canadians so that they can collect a pension when they turn 65 and can no longer work.

Pay Stub Definitions (continued) • Deductions: (continued) • EI: Employment Insurance – the government collects 1.83% from every working Canadian per pay cheque as insurance to pay him/her back if he/she loses his/her job. Canadians can collect EI for up to 18 months. • Ontario Health Tax: The government will charge a health tax based on gross income and it will be evenly distributed throughout the year. • Other Deductions: Benefits, Union Dues, etc. • Net Pay: The amount of pay an employee gets to take home. Also known as discretionary income, it is the amount of gross pay minus all deductions

Income Tax Explained TIER #1 TIER #3 TIER #2 FITS: $10,000 Tax Rate: 0% Total Tax Paid: $ 0 FITS: $29,020 Tax Rate: 21.05% Total Tax Paid: $ 6,108.71 FITS: $3,687 Tax Rate: 24.15% Total Tax Paid: $ 890.41

Income Tax Explained (Continued) TIER #4 TIER #6 TIER #5 FITS: $35,336 Tax Rate: 31.15% Total Tax Paid: $ 11,007.16 FITS: $7,371 Tax Rate: 33.16% Total Tax Paid: $ 2,444.22 FITS: $46,992 Tax Rate: 37.16% Total Tax Paid: $ 17,462.22

Income Tax Explained (Continued) TIER #7 TIER #8 UNLIMITED FITS: $367,594 Tax Rate: 40.16% Total Tax Paid: $ 147,625.75 FITS: Unlimited Tax Rate: 41.16% Total Tax Paid: Unknown

Calculating Yearly Income Tax • Find the tier that your gross pay ends in • Subtract the tier minimum number from your gross pay • Multiply the difference from number two above by the tier’s income tax rate. • Add the product from number three above to all of the previous tiers’ total income tax paid.

Calculating CPP and EI • CPP and EI are calculated each pay cheque (unlike income tax that is calculated yearly and spread out evenly throughout the year). • To calculate CPP and EI, multiply your gross pay by 4.95% (CPP) and 1.83% (EI)

Calculating the Health Tax • Find out which bracket your gross pay falls into on the health tax chart • If you need to make a calculation, subtract the dollar value in the chart from your gross income. Then multiply the difference by the percentage in the chart’s bracket. Add this value to the amount you owe. • Take the amount you owe and divide it by how many times you get a paycheque. Each paycheque, you will pay an even amount.

Where Does Income Tax Go?

Personal Finance