MATH 10 – UNIT 4

FM. 4

Students are expected to: Explain why gross pay and net pay are not the same. Determine the Canadian Pension Plan (CPP), Employment Insurance (EI), and income tax deductions for a given gross pay. Determine net pay when given deductions (e.g., health plans, uniforms, union dues, charitable donations, payroll tax).

Vocabulary earnings cheque (same as check) pension deductions snowmobile physical therapist offshore pay stub

Key Term NET PAY – the amount you receive on a paycheque after deductions have been taken off. Also called take-home pay

Key Term DEDUCTIONS – an amount of money subtracted from gross pay. It includes: - federal income tax -CPP ( Canada Pension Plan) -- Employment Insurance (EI) It can also include: - union dues, vacation pay, and health or dental insurance

Investigate Net Pay Please refer to pages of your FM textbook.

Deductions and Net Pay Net Income: –This is the amount made AFTER deductions are taken off for a variety of things (EI, CPP, RRSP, income tax…) –Also called “take-home” pay. Now that you are familiar with all types of GROSS salary calculations (Lessons ), let’s factor in some deductions to get a truer picture of what people like you and I make in Canada.

CPP – Canadian Pension Plan Provides you with a pension when you retire Both you and your employer contribute the same amount each paycheque. The 2010 Contribution Rate is 4.95% of everyone’s gross annual income.

CPP Example and Yearly Max 2010 Contribution Rate % of gross annual income Example: If your annual salary is $65,000, how much will you contribute to CPP over the year? $65,000 x = $ /yr However, the federal government sets a limit of how much CPP they can take: In 2010 the max CPP was $

EI Premium Employment Insurance Premium The government collects 1.4 times from your employer as from you. So if you contributed $1.00, your employer would contribute $1.40. In the year 2010: –EI Rate is 1.73% of an employee’s GROSS income

Example If Tara's gross earnings are $ how much will she pay in CPP? (rate of 4.95%)

Example If Tara's gross earnings are $ how much will she pay in EI? (rate 1.73%) What is Tara’s net earnings?

Example If Brandon’s gross earnings are $ how much will he pay in EI? (rate 1.73%) How much in CPP? (4.95%) What is his net earnings?

Federal Tax Federal tax rates for 2010 are: 15% on the first $40,970 of taxable income, + 22% on the next $40,971 of taxable income (on the portion of taxable income between $40,970 and $81,941), + 26% on the next $45,080 of taxable income (on the portion of taxable income between $81,941 and $127,021), + 29% of taxable income over $127,021.

IF you made $ last year how much would you pay in federal income tax?

Step 1: Calculate the 15% tax deduction for the first $40,970.

Step 2: Calculate the 22% tax deduction for the next $40,971.

Step 3: Calculate the 26% tax deduction for the remaining income. (how much is remaining untaxed?)

Step 4: How much income tax did you pay? Step 5: How much is your net income?

Nova Scotia Provincial Tax 10% of taxable income

Build Your Skills 1. If the federal tax rate is 15%, how much is deducted from your $ paycheque? $ x 0.15 =$ deduction

2. If your short-term disability insurance rate is 0.5%, what do you pay if your paycheque is $300.00? $ x = $1.50 would be paid

3. If your Canada Pension Plan (CPP) contribution rate is 4.95% and your salary is $ every two weeks, what will be the CPP deduction? $ x = $78.11 deduction

4. Samantha’s monthly taxable income was $ If she paid $ in taxes, what percentage of her taxable income did she pay? $ ÷ $ = = x 100 =23.11%

5. Patricia’s before-tax deductions amounted to $75.47 on a gross salary of $ A) If she paid $93.68 in federal tax, what is her tax rate? $93.68 ÷ $ = × 100 =13.38%

5. Patricia’s before-tax deductions amounted to $75.47 on a gross salary of $ B) If she paid $36.85 in territorial tax, what is her tax rate? $36.85 ÷ = × 100 =5.26%

6. Hans paid $37.51 Employment Insurance (EI) on his taxable monthly income of $ What is the EI rate? $37.51 ÷ $ = × 100 =1.73 %

7. Randy works at two jobs. In one job, he earns $325.00/week, and had deductions of $56.67 federal tax, $13.12 provincial tax, $16.09 CPP, and $4.14 EI. At his other job, he earns $567.00/week and pays $79.42 federal tax, $16.82 provincial tax, and $18.12 CPP. What is his net income?

Job 1: Total deductions: $56.67+$13.12+$16.99+$4.14 =$90.92 $ − $90.92 =$ Job 2: Total deductions: $79.42+$16.82+$18.12 =$ $ − $ =$ $ $ = $686.72

8. As a part-time college instructor, Kathy teaches an introductory course on Mexican history. She has a biweekly gross income of $ Her before-tax deductions include a short-term disability premium of 0.5%, union dues of 3.1% and a pension amount of 4%. If she pays federal tax at a rate of 18.5%, provincial tas at a rate of 6.2% CPP at 4.95% and EI at 2.2%, what is her net income?

Short-term disability $ × =$18.27 Union dues $ × =$113.30

Short Term $18.27 Union Dues $ Pension $ × 0.04 =$ Gross income $18.27+$ $ =$ $ − $ =$

Gross Income $ Federal Tax $ × =$ Provincial Tax $ × =$ CPP $ × =$ EI $ × =74.29

$ $ $ $74.29 =$ (TOTAL OF ALL DEDUCTIONS!) $ − $ =$

Example # 1 Refer to page Classwork -Page 48 -Questions 1-4 Homework -Page 48 -Question # 5

Example # 2 Refer to pages Note: There are some errors of this pages due to tax calculations. Please download online. Classwork Questions # 1-7 p. 52 Homework Questions 8-11 p. 53

Reference ation/tax101/harmonizedsalestax/default.aspx