Working More Than One Job? You Probably Owe Income Taxes.

John — Thu, 10 Oct 2024 01:54:15 +0000

Working More Than One Job? You Probably Owe Income Taxes.

John Smyk, CPA, MBA

Entrepreneurial Contributor

It comes with a dose of reality that many Canadian households are under tremendous economic pressure. The past few years has seen a spike with price inflation causing the cumulative cost of living to skyrocket. As a result, it has created elevated high anxiety for those Canadian households to take action to maintain, let alone, eroding their standard of living. Lets see how numerous jobs, greater taxes creates a potential problem for taxpayers.

The course of action to counter the financial pressures of making ends meet has been to work two or more jobs. When thinking about the average household budget for just the basics, is overwhelming how Canadians are coping. Food, rent or mortgage payments, utilities, clothing, transportation, and healthcare costs are giving many the headaches to determine their priority spending. Having more than one job has become a necessity to elevate these higher costs. However, is it this simple?

The Unexpected Tax Consequences

Unfortunately for many taxpayers, they may be under the false pretenses that their employers are taking the necessary payroll income taxes to determine their net pay. The surprise will come on April 30th, when their CRA T1 Federal General Form return is due and filed. As each Canadian Province and Territory has differing personal income tax legislation, these taxes will vary for additional income taxes. Most likely, two scenarios are more likely to occur, a much lower income tax refund than expected or a deficiency of income taxes due to be paid.

In isolation, each employer is deducting the required withholding taxes based on your completion of CRA TD-1. However, it is your responsibility to properly complete this form to ensure the appropriate income tax is being deducted.

Other Tax Considerations

Below is a simplified example of how having multiple jobs increases your personal Federal Income Taxes. As the CRA Federal personal income tax rates are progressive, you’ll want to ensure that you understand all your available deductions and in addition any tax deferral vehicles available.

In Exhibit 1, starting with Job 1, you’ll notice how the base personal income tax is calculated. When adding job 2, the average Federal Tax Rate increases incrementally higher. Then, job 3, continues to increase the average Federal Tax Rate. Remember to keep in mind that multiple jobs increases your personal income tax payable.

This illustration provides a calculation of a taxpayer’s employment income tax payable. The Federal Tax Brackets demonstrates the computation over the progressive tax rates. The difference is due to rounding.

Taxpayers Plan Your Household Finance Strategy

To plan your household budget is almost next to impossible in a volatile economy of rising prices. Although, it generally means that creative priority spending becomes as much an art as a science. Take measures to spend and save your money wisely. Any extra money should be placed into a contingency fund, in the event of unexpected household expenses. Another strategy is to shore up any tax deferral plans, such as a Registered Retirement Savings Plan (RRSP), First Time Homebuyers Plan (FTHP) to reduce your taxable income with some excess cash.

If you have any doubts with your ability to make the decisions necessary to direct your financing goals, always speak to a finance professional. It never hurts to get a professional assessment of your household finance strategy or even attain one. Basic finance literacy is still debatable after the credit crises of the late 2000’s. Therefore, placing your personal finance goals at the highest priority will guide you to make the best decisions to avoid unexpected income tax consequences.

John Smyk is Founder of The Entrepreneurial CPA helping entrepreneurs, solopreneurs, small-large business. Contact us for a free consultation Let’s Go To Grow!

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Working More Than One Job? You Probably Owe Income Taxes.

Working More Than One Job? You Probably Owe Income Taxes.

John Smyk, CPA, MBA

The Unexpected Tax Consequences

Other Tax Considerations

Taxpayers Plan Your Household Finance Strategy