As a student, you may work part-time during the school year or full-time in the summer to help pay for school and other living expenses. When you earn a pay cheque, you may be paying income tax and other "payroll taxes", perhaps for the first time. For example, your employer may deduct:
- Employment Insurance (EI),
- the Canada Pension Plan (CPP).
Due to these deductions, you don’t get to keep everything you earn. Take a look at this sample pay stub to help you see what the tax deductions may look like on your pay stub.
Here are some common questions students have about their paystubs. Reading them will help you understand the information you see. It's your money, so make sure you know where it’s going!
What is gross pay?
Your "gross" pay is the amount you make every week, every month or every hour before your employer deducts any taxes or other items.
What is net pay?
When you get your first paycheque, you may notice that the amount you receive is quite a bit lower than your gross pay. By law, your employer has to deduct income tax and payroll taxes right off your paycheque. You never even see that money. It goes straight to the government. What you are left with is your "net" or "take home" pay.
How does income tax work?
In Canada, we pay tax at graduated rates. This means that the tax rate goes up as your income goes up. The table below sums up the tax rates that apply in 2012. Don’t forget you also pay provincial tax.
||The tax rate that applies|
|$1 to $42,707
||15 per cent|
|$42,708 to $85,414
||22 per cent|
|$85,415 to $132,406
||26 per cent|
|$132,407 and up
||29 per cent|
Important: You do not end up paying federal income tax on the first $11,038 of taxable income you earn in 2012. This is because of a tax credit called the Basic Personal Amount. So you declare your income, but then reduce it by the basic personal amount.
You may also qualify for other credits. For example, students may be able to deduct the cost of:
These deductions may eliminate or reduce any tax you owe. So make sure you take advantage of all the tax credits you are entitled to claim.
What are the Canada Pension Plan (CPP) and Employment Insurance (EI) deductions for?
The programs are run by the government and every person who works must contribute. You may benefit later by receiving payments back. For example:
If you lose your job: EI protects workers by paying out benefits if you become unemployed. You have to apply and qualify for these benefits.
If you retire after age 60: The CPP pays benefits to seniors who qualify.
Your employer also contributes to EI and CPP on your behalf. How much? It depends on what you contribute. This chart shows an example of
- the amounts you and your employer would pay
- the maximum limits that apply in 2012.
||Your employer pays
||2012 maximum annual|
|For EI: $7.92
||$11.08 (1.4 times what you pay)
||Up to $839.97|
|For CPP: $15.20
||Up to $2,306.70|
What other deductions may I have to pay?
Your employer may deduct other items from your pay. For example, you may choose to participate in your company's:
- pension plan
- group insurance plan, or
- RRSP savings plan.
Any of these programs will likely reduce your net take-home pay if contributions are made/required.