I had a few jobs at the same time in my university years and was stunned by the fact I had to pay additional taxes in April. Make sure that you set some money aside to account for the fact that each of your employers are deducting taxes as if you are in a lower tax bracket than you really are (because of the fact that you have two jobs, not one).
Whether you will ultimately pay more in tax or not depends on a couple of factors, including how much you are currently earning and how much you will earn in the second job.
As Robillard pointed out above, if both jobs are deducting payroll taxes you will likely have a CPP and EI *overpayment* at the end of the year, and hence a refund.
However, if the second job pays less than $3500 in total over the year, no CPP will need to be deducted, and you may need to make up a shortfall of CPP contributions, depending on how much you earn at job number one.
If your tax bracket does not change as a result of the new income (and that middle bracket is pretty wide), then the total amount of *income tax* deducted will be accurate across both jobs - and all you will need to worry about are payroll taxes. This also changes from province to province.
Easy on the slander, leslie ... that is patently false.
Originally Posted by leslie
I have never disputed any “facts” … what you incorrectly think are “facts” are often errors … and what you incorrectly think is “proof” is often nothing of the kind.
I have, from time to time, pointed out errors in various online sources ... if you are referring to the exchange I think you are, I explained quite clearly what was wrong and why it was wrong … you didn’t read the explanation.
I'm not involved in payroll, but I can't see how this could possibly be true ... if a first job pays $40k, and employee properly completes the TD1, then the income tax deducted from his paycheques would reflect a total income of $40k, with whatever personal tax credits apply ... then if he takes an additional job paying $10k, and again completes the TD1, that employer would also withhold income tax based on that level of income and the same personal tax credits ... in that scenario, the total withheld would be insufficient to cover the tax owing, so additional money would have to be forked over in April.
Originally Posted by MoneyGal
Is there some mechanism that allows each employer to know how much income the other employer is paying, and to ensure that the personal tax credits are not double-counted?
Nah. I was writing that response in the midst of 1,000 interruptions from my kids, and I was not as clear as I could have been.
My intention was to respond to Alexandra's post saying that if the income from your two jobs combines to bump you up a bracket, you will owe more tax. And while this is true, the phrase "each of your employers is deducting tax as if you are in a lower bracket than you are" is misleading.
Each employer will deduct tax as if the income you are earning is the only income you are earning. Your employer is responsible to calculate and withhold income and payroll taxes for the income you earn with them, not your total income (you are the one responsible for that!).
Also, the middle income tax bracket is very wide. Unless you are near the top, or your earnings from your second job are substantial, you will likely not be bumped up a bracket. Instead, what you will need to do is pay the tax on income from Job no. 2 for the bracket you are actually in, whatever that is.
So, if you are in Ontario and earning $45,000 in job 1 and $5,000 in job 2; your combined marginal rate is 31.15% (and that bracket goes from roughly $40 - $65K, which is why I said it was wide). What will happen come tax time is not that you will be bumped up a bracket, but that you will need to pay tax on the earnings from Job no. 2 at the correct rate, which is 31.15%. Your employer will have withheld payroll taxes in Job 2 at the applicable rate for $10,000 in income, which is 21.15% of the amount by which your income exceeds the basic personal exemption ($8991 for 2009).
Clear as mud?!
Last edited by MoneyGal; 2009-06-12 at 12:35 PM.
Reason: to add missing word
Ahh, this is exactly what I figured ... in which case as you say, it is not necessary for there to be a boost into the next bracket, the aggregate amount withheld will be insufficient regardless.
Originally Posted by MoneyGal
I suppose there may be a mechanism to request that one of the employers withhold more tax, but I can't imagine any circumstance under which I'd be willing to do that.
MoneyGal is exactly right - sorry I wasn't clear when I posted. Both jobs I had were part-time, and were taxed at the tax bracket for income I was earning for that particular job. But at the end of the year, when both salaries were added up from the two jobs, my earnings actually put me into a higher tax bracket.
So I was taxed individually at each job in a lower tax bracket, but my total earnings actually meant I should have been taxed at a higher tax bracket. That's why I owed in April.
There is a form you can fill out at the beginning of the year that tells your employer what tax credits you'd like them to apply before deducting taxes for you - Form TD1, the Personal Tax Credits Return. There is a spot on the Federal form that allows you to get additional taxes deducted at source.
(Alexandra, my name is also Alexandra...!)
Also see Form T1213, which allows you to request reductions at source if you have regular deductible or creditable tax events through the year (for example, regular RRSP contributions).
You would have owed in April even if your combined income wasn't in the next higher bracket ... the reason is each employer applied all the tax credits you indicated on your TD1, and calculated tax withholdings accordingly ... your personal tax credits were thus double-counted ... bumping up into the next bracket exacerbated the situation, but didn't create the situation.
Originally Posted by Alexandra
That form is the key to make sure I pay enough tax deductions on my second job's paychecks. I'll be careful when I fill it out.
Originally Posted by MoneyGal