# Second job... Tax impact



## Taxsaver

I have a full-time job right now. To help me saving money to buy a house, I'm considering getting a second job, part-time job. I would add 16 hours a week to my 40 hours of my full-time job. All of my friends tell me it's a bad idea because I will pay such a big amount of tax. I'm thinking about buying a tax software to calculate, but it may not be necessary if you provide me with the answer. Thanks.


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## steve41

Without knowing your hourly rate, it is pretty well impossible to determine. The old myth about it not being worth it because of the taxes is soooo lame. 

It is worth it, unless the extra work cuts into your drinking time or your health is going to suffer.


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## leslie

I remember my friends saying the same thing when I was young. It ranks right up there with the other belief rampant in youth that your boss should not mind paying any expense 'because it is tax deductable'.

Educate yourself on marginal and average tax rates. 

You will find that your average tax rate is WAY lower than you thought. And certainly not high enough to dissuade you from wanting to earn more. 

Even the highest marginal rates are not high enough to do that. And you will not NEARLY be in that tax bracket.


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## MoneyGal

There are some fantastic free calculators at http://walterharder.ca, including a take-home pay calculator and a marginal rates calculator. 

Also: if the new income pushes the amount of your total income subject to a higher marginal rate up, that actually works to increase the efficiency of your tax deductions, such as RRSP contributions. 

This can be a pretty tax-efficient way to save for a house downpayment - make "additional" contributions to an RRSP (presuming you do not already make the maximum now - but if you earn more, you may get more room, too) to build up a pool from which you take a HomeBuyer's Plan withdrawal. 

People have a knee-jerk reaction against "paying more tax" but it isn't always warranted. Like leslie said, take a look at the bigger picture!


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## lb71

You will be paying more in tax, but you will also be taking home more in pay. You have a noble goal of buying a house, and the extra income will help you achieve that goal. Don't worry about what your friends think. They may be jealous of your work effort, or just worried about enjoying life. Do what is best for you. And one day, when you own your house and renting out rooms to your friends, you can sit back, relax, and have the last laugh.


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## Taxsaver

Thanks everyone for the info. It confirms what I thought. I will try the free software mentionned by one of you.

I don't have any RRSP... I'm a slow starter (44 y.o.). I used to think I could live my life without them. I prefered to spend away the money. I will look for info .


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## Robillard

Taxsaver,
Having a second job might push you up into a higher tax bracket, which would raise your marginal tax rate. At the same time, it might result in you paying lower payroll taxes if you are close to the cutoff point. 
For 2009, the second federal tax bracket (a 22% marginal rate, up from 15% below this point) starts at $40,726. For CPP contributions (a 4.95% marginal rate if you work for someone else), you stop making contributions above the $42,800 threshold. EI contributions (a 1.73% marginal rate) stop above $42,300. So you see, if a second job pushes you over $40,000, although your marginal federal tax rate goes up, this get partially offset by the decrease in your payroll taxes (CPP and EI premiums). I haven't talked about provincial taxes because I don't know which system would apply.

If you do take a second job, you should take your other income into account when filling out the required tax form (I forget its number). Basically, if you don't your second employer might withhold too much tax, CPP and EI. This overpayment will be refunded when you file your taxes, but it is much better to tell payroll to withhold less tax, CPP and EI rather than give the government a zero-interest loan.


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## cardhu

Taxsaver ... I agree you should educate yourself about tax rates & tax calculations, but be very careful what you use as a source of information ... there is a lot of information on the web, but unfortunately a lot of it is wrong ... the retailinvestor link referenced above is one such example ... you don’t want to have to relearn these things, after being led down some garden path by wrong information from an erroneous source.


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## leslie

And the OP has to realize that cardhu has a history (on another BB) of badmouthing facts he cannot disprove.


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## George

The one thing to remember is that if you have two jobs, both employers will deduct taxes, CPP, EI, etc from your paycheques *as if you only had one job*. This means that you'll end up with more take-home pay on an ongoing basis, but may have to pay extra taxes come April - be prepared for this and set aside a bit of each cheque as a tax-witholding amount.

The total amount of taxes, CPP, and EI payable at the end of the year is based on the *total* earned from all of the jobs combined.

It's impossible to tell what the tax implications would be without knowing how much you're earning in your present job, and how much you will be earning in the new job. In any event, you'll definitely take home more money if you pick up the extra job, even if you do have to pay a few dollars in extra taxes.


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## Alexandra

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).


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## MoneyGal

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.


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## cardhu

leslie said:


> And the OP has to realize that cardhu has a history (on another BB) of badmouthing facts he cannot disprove.


Easy on the slander, leslie ... that is patently false.

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.


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## cardhu

MoneyGal said:


> 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


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. 

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?


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## MoneyGal

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?!


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## cardhu

MoneyGal said:


> Each employer will deduct tax as if the income you are earning is the only income you are earning.


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. 

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.


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## Alexandra

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.


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## MoneyGal

(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).


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## cardhu

Alexandra said:


> 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.


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.


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## Taxsaver

MoneyGal said:


> (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).


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.


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## Alexandra

cardhu said:


> 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.


It was a long time ago, so I can't remember exactly what I did, but I do think I had the option of not getting the tax credit for the second job. It has some kind of warning right on the form for people with two jobs, just so this situation will not arise. 

So in my case, I owed taxes because my two jobs put me into a higher tax bracket. Maybe other people ignored the wanring and ended up in the situation you describe.

It would have been worse for me, but I had also paid too much CPP and UI, so the tax bill was not as extensive as it could have been.


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## cardhu

Alexandra ... yes, you are right ... in that case the extra tax owing in April would have been attributable to the shift in brackets.


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## gee1979

*Second job taxation*

I am having the same issue trying to figure out if it is worth the time and effort by acquiring a second job. I currently earn 45,260 gross and have accepted a position part time, earning 27,300 additional income.

I have a the same goal of home ownership and would like to know if that extra work is really worth it!

What would my tax situation be? I was planning on maxing out rrsp contributions at 25K for the first time home buyers plan in ontario and the frest would be in a TFSA account and high interest savings account.

What are your thoughts, comments and suggestions with regard to this issue?

Thank you.


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