1. MATHPOWER TM 11, WESTERN EDITION 9.2 9.2.1 Chapter 9 Personal Finance

2. After all deductions are subtracted from the gross income, the amount that the employee actually receives is called the net income. There are certain deductions which an employer must make from the employees paycheque: Canada Pension Plan (CPP) Employment Insurance (EI) Income Tax, both federal and provincial Other possible payroll deductions include: union dues, professional dues, life insurance premiums, parking fees, registered pension plan contributions (RPP) Taxable Income is gross income subtract any tax-exempt deductions: union or professional dues, RPP, RRSP Net Income 9.2.2

3. Canada Pension Plan is money that the government collects toward an employee’s future pension. One year the CPP contributions were 3.2% of the gross income. The first $3500 is the basic CPP exemption and is not subject to CPP contributions. Employment Insurance is an insurance plan where, if an employee has paid the minimum number of premiums, then the plan provides some income during periods of unemployment. One year the EI premiums were 2.7% of gross income, up to a maximum of $1053. 9.2.3 Net Income [cont’d]

4. Angie is paid biweekly and has gross earnings of $1160. Calculate her CPP contributions and her EI premiums per pay period. Gross Annual Income:26 x $1160 = $30 160 CPP Contributions:Gross Income - Basic Exemption $30 160 - $3500 = $26 660 3.2% of $26 660 = $853.12 Biweekly CPP Contributions:$853.12 ÷ 26 = $32.81 EI Contributions:2.7% of $30 160 = $814.32 Biweekly EI Contributions:$814.32 ÷ 26 = $31.32 Angie’s biweekly CPP contribution is $32.81 and her EI contribution is $31.32. 9.2.4 Calculating EI and CPP Contributions

5. Income Tax: The amount of income tax deducted depends upon the employee’s income and tax credits. Basic Personal Tax Credits are deductions granted for each person that the employee supports. Alberta Provincial Tax Rate: 45.5% of basic federal tax 9.2.5 Calculating Federal and Provincial Tax

6. Alina earns $1020 per week. Each week she pays $85 into an RRSP, $6.50 for union dues, and $7 for medical insurance. Her basic tax credit is $6456. a) Calculate annual deductions for CPP and EI. b) Find the total amount of income tax deducted. c) Determine her net annual income. a) CPP Contributions: 52 x $1020 = $53 040 $53 040 - $3500 = $49 540 $49 540 x 0.032 = $1585.28 EI Contributions: 0.027 x $53 040 = $1432.08 9.2.6 Calculating Net Annual Income

7. b) Federal Income Tax: Calculate taxable income first. Taxable Income = gross income - tax-exempt deductions = $53 040 - 52($85 + $6.50) = $48 282 Federal Tax (using the table): = 17% of $29 590 + 26% of ($48 282 - $29 590) = 0.17 x $29 590 + 0.26 x $18 692 = $9890.22 Tax Credits = Basic Personal Tax Credit + CPP + EI = $6456 + $1585.28 + $1432.08 = $9473.36 Basic Federal Tax = Federal Tax - 17% of tax credits = $9890.92 - 0.17 x $9473.36 = $8279.75 9.2.7 Calculating Net Annual Income [cont’d]

8. Provincial Tax: = 45.5% of Basic Federal Tax = 0.455 x $8279.75 = $3767.29 Total income tax deducted = $8279.75 + $3767.29 = $12 047.04 c) Total Deductions = CPP + EI + income tax + tax-exempt deductions + any other deductions = $1585.28 + $1432.08 + $12 047.04 + 52($85 + $6.50 + $7) = $20 186.40 Net Annual Income = Gross Income - Total Deductions = $53 040 - $20 186.40 = $32 853.60 Calculating Net Annual Income [cont’d] 9.2.8