Pay stubs Personal Finance 30L

What is a pay stub? A payslip, pay stub, paystub, pay advice, or sometimes paycheck stub, is a document an employee receives either as a notice that the direct deposit transaction has gone through, or is attached to the paycheck.

Elements of a pay stub By law, an employer must deduct the following amounts from your employment earnings: Income tax Employee contributions to Employment Insurance (EI) Employee contributions to the Canada Pension Plan (CPP) These deductions mean that the amount on your paycheque will be less than the total you earned. Your employer must withhold and remit these amounts directly to the Canada Revenue Agency (CRA). However, you do get credit for having paid these amounts, which are reported on your T4, when you file your annual tax return.

What is Income Tax? In Canada, we pay income tax at graduated rates. This means that the tax rate goes up as your income goes up. In addition to federal tax, you must also pay provincial tax, which varies by province. In December 2015, a Notice of Ways and Means Motion introduced a “middle class tax cut” and a new tax bracket for high-income earners. Specifically, it reduced the second personal tax rate from 22% to 20.5%, and also introduced a new top tax rate of 33% on taxable income over $200,000, for 2016 and subsequent tax years. 

Federal Income Tax Graduated Rates Income Level 2016 Tax Rate $1 to $45,282 15% $45,283 to $90,563 20.5% $90,564 to $140,388 26% $140,389 to $200,000 29% Over $200,000 33% The Basic Personal Amount Because of a tax credit called the basic personal amount, you do not pay federal income tax on the first $11,474 of taxable income you earn in 2016.

Provincial Income Tax Graduated Rates Income Level 2016 Tax Rate $1 to $44, 601 11% $44,602 to $127,430 13% Over $127,430 15% The Basic Personal Amount Because of a tax credit called the basic personal amount, you do not pay provincial income tax on the first $15,843 of taxable income you earn in 2016.

Combined Federal and Provincial Tax Rates Income Level 2016 Tax Rate First $44,601 26% Over $44,601 to $45,282 28% Over $45,282 to $90,563 33.5% Over $90,563 to $127,430 39% Over $127,430 to $140,388 41% Over $140,388 to $200,000 44% Over $200,000 48%

What is Ei and CPP? These programs are run by the federal government and participation is mandatory. You may benefit in the future by receiving payments from these programs. For example, EI protects workers who become unemployed by paying out benefits to those who apply and qualify. If you retire after age 60, the CPP pays benefits to seniors who qualify. In addition to the amounts that are deducted and withheld from your pay, your employer also makes contributions to EI and CPP on your behalf. The amount depends on how much you contribute.

More on Employment Insurance Employment Insurance is a social program that contributes to the security of all Canadians by providing assistance to workers who lose their jobs and helping unemployed people across the country to get back to work. Effective January 1, 2016, the maximum insurable earnings will increase from $49,500 to $50,800. This means that an insured worker will pay EI premiums in 2016 on insured earnings up to $50,800. Employers and Employees pay EI premiums. Employees pay $1.88 per $100 (1.88%) earned up to a maximum of $955.04 (2016) per year. Ex: Gross Pay is $500 you will pay $9.40 to EI. Employers pay 1.4 times what their employees paid to EI. Ex: Gross Pay is $500, employer pays $13.16 to EI. The government of Canada would receive a total of $22.56 in these examples to run the Employment Insurance program.

More on the Canadian Pension Plan The Canada Pension Plan (CPP) is a contributory, earnings-related social insurance program. The CPP program mandates all employed Canadians who are 18 years of age and over to contribute a prescribed portion of their earnings income to a nationally administered pension plan.

Other Deductions on your pay stub Your employer may deduct additional items from your pay. For example, you may choose to participate in your company's: pension plan group insurance plan RRSP savings plan RESP savings plan If you are a member or a union or a professional group fees may also be deducted. Work related charitable contributions may also be deducted. Participation in these programs will reduce your net take-home pay if you opt-in to contribute or they are required.

Elements of a pay stub Depending on how you get paid, your pay stub will either be attached to your cheque or to a direct deposit statement. This sample pay stub illustrates the following common terms: Gross pay – Your "gross" pay is the amount you make every week, every month or every hour before your employer deducts any income taxes, payroll taxes (EI and CPP) or other items. Net pay – Your “net” or “take home” pay is your gross pay, less all amounts deducted and remitted to CRA on your behalf by your employer.

Elements of a pay stub