“In 2020 I worked at three different employers. I made about $10,000 dollars from each one. Now i’ve discovered I owe income taxes! How is that possible?”-Steve
In a previous blog we discussed the various government COVID programs launched in the past year. They can have a big impact on your tax situation.
There is another, more common scenario for many people. That also can come with a big surprise when tax time comes around.
Statista suggests more than 800 thousand Canadians are working at more than one job.
The core of this problem comes from the Basic Personal Exemption.
Here’s the easiest explanation of the exemption: It’s the amount of money you can make before income tax deductions kick in from your employer.
In Ontario, that’s the first 10 thousand dollars. The federal government provides for a 13 thousand dollar exemption.
Steve made 10 thousand dollars from each employer so why does he owe income taxes?
The basic personal exemption applies to the first 10 thousand ( or in the federal case) 13 thousand dollars of your total income… not the income from each employer. Steve will still get the initial personal exemption, but he will have to make good on the taxes owed on the amount earned over that.
Cloudtax CEO Nim Balachandran says it’s not really the fault of anyone
“The system is set up to a default of you working for one employer” says Balachandran. However, he adds most people don’t understand the way the system works, which can lead to an expensive revelation when the tax deadline arrives.
“That can be a very difficult situation” says Balachandran “it can be quite discouraging for people”
In Steve’s case, those 3 separate T4 slips could end up with him owing Canada Revenue about 3 thousand dollars. (of course, the numbers vary depending on each person’s individual situation)
Sadly, there is nothing you can do at this point with your 2020 situation. We do recommend you take a few minutes and run your forms through our tax calculator for a heads up
But you can make some arrangements for the next tax season. You can approach your employer and ask for tax deductions to be taken from your pay. Or if you happen to be among those people who must fill out the form every year—take advantage of the box which allows you to specify the extra tax deductions you would like to take.
So, pick up a side gig if you want…or need to…but be aware of the impact that can have on your tax situation, and plan accordingly.