Many readers may realize this, but I didn’t, until well into my 30s.
Tax brackets, I thought, meant that if I earned over a certain amount, say $75K, all of my earnings would be subject to greater taxes.
That’s not how it works. Here’s where we’re at in Canada, for our federal (not including provincial) taxes per the budget speech today:
Nobody pays taxes on the first $10,320 we earn.
On every dollar after that up to $40,726 , we pay 15% income tax (= $4560.90 in taxes if we earned the full $40726.00).
On every dollar after that up to $81,452, we pay 22% income tax
And on every dollar after that we pay 26% income tax.
As an interesting fyi, income taxes contribute over half the revenue of the Gov’t. The rest comes from corporate taxes and gst.
Just a clarification – while your numbers are correct, they only include federal income taxes. Add in provincial income taxes and EI contributions, and the percentages jump a fair bit.
If you ask most people what percentage of their gross pay goes toward taxes, they probably couldn’t tell you (or even venture a guess).
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And don’t forget to add those who pay union dues. Although union dues are tax deductible, you still lose a portion of your pay now in hopes of recuperating it back from the government when you file your income tax.
So here in Ontario, I would estimate on my part time work that I’m losing about 20% of my pay altogether to federal and provincial income tax, EI (which would probably prove useless if I ever need to claim – stupid Chretien), Canada Pension, and union dues. Brutal!
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The flip side of this, of course, is that while a portion of your money goes to the government, in return you get things like health care and education and EI (should you be unfortunate enough to lose your job) and pension, etc. Not that I’m saying there aren’t problems with our health care and education systems, but it’s not like the taxes you pay aren’t coming back around in other ways.
Beth’s last blog post..Bad Words
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@beth – Totally with you. In fact, I wrote a post ages ago puzzling over our seething resentment over our taxes. I figure I haven’t even yet paid back the true cost of my university education.
@george and @lior yep, all true. I was simply trying to explain how the tax brackets themselves work since they just changed a bit in the new budget.
nancy’s last blog post..Investing with a conscience
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