hey guys it's Adrian here the Canadian in a T-shirt and today I'll be showing my pay stub
and breaking down how to read a pay stub in Canada for 2023. with the New Year we're already seeing
tax changes in Canada so I'll be breaking down all of the payroll deductions that come out of your
paycheck like income tax CPP employment insurance and taxable benefits I always say it's not about
how much money you make it's about how much money you keep and it's so important to understand
where your money is going this video is especially helpful for new Canadians students and people new
to the workforce but even if you've been working here for 20 years you might not understand all of
the numbers and deductions in your paycheck so that's what this video is for I'll be showing
you guys my actual pay stubs both from my Corporation where I pay myself a salary and
from past employers I'll start with the first pay stub of the new year it will be a simple example
highlighting the two most important deductions from your pay income tax and CPP then I'll compare
this to the same pay stub from last year to illustrate the tax changes for 2023. as I talked
about in my last video These tax changes are good news reducing your tax bill so that you'll have
more money in your pocket and I'll show you proof finally I'll show a more detailed pay stub from
my last job which has a lot more deductions that you've probably seen like employment insurance
taxable benefits Group Insurance pension plans disability and so on as always I include times
stamps for each chapter so feel free to skip ahead make sure you watch the rest of my Canadian
tax guide my videos with the silver thumbnails to learn the basics of how taxes work in Canada what
are tax brackets credits and deductions and how to file your taxes step by step so with that let's
jump in most Canadians earn a living by working a job and when you get paid you receive a paycheck
this is different from a pay stub a paycheck is the physical check the piece of paper that
you can deposit at the bank but more likely it's automatically deposited into your bank account
a pay stub is what we really care about it's a detailed breakdown of how much money you earned
and how much money was taken away every pay stub has three main parts one the gross pay how much
money you earned from your salary or wages before taxes to deductions taxes and fees that come out
of your earnings and three your net pay that's how much money actually goes into your bank account
let's look at an exam sample here is my pay stub for the first week of 2023 and you can see the
three parts first my gross pay this is the pre-tax salary that I pay myself then my deductions and
taxes that are taken out automatically and finally my net pay these three are summarized in this box
here but I'll break it down you'll notice that this is a very simple pay stub with very few
deductions and that's why I'm starting with this example we'll get more complicated later
your pay stub will likely have five or six rows of deductions I only have two and that's because
I own the company the employer is my Corporation Canadian in a t-shirt Inc I am the CEO so I can
choose how much of a salary to pay myself and I can choose what kind of benefits and deductions
I want or don't want this is a one-man show I am literally the only employee of this company
I don't have anyone depending on me so I didn't want to spend money on health insurance plans or
disability protection or employment insurance I I chose to cut those out to reduce my deductions
as much as possible but with income tax and CPP I don't have a choice I have to pay those but on the
bright side it makes this example easier for you guys so back to the top you can see my employer my
Corporation and myself as the employee here you'll see my pay period which is two weeks I pay myself
bi-weekly which is the most common approach with bi-weekly paychecks you get paid on the same day
every two weeks usually on Fridays since there are 52 weeks in a year you'll receive 26 paychecks in
a year another option is semi-monthly where you get paid twice a month or every 15 days
there are 12 months in a year so you'll receive 24 paychecks each year you can also get paid once
a week or once a month this will depend on your employer for me I chose to pay myself bi-weekly
and I also chose my salary of ninety thousand dollars that's my gross salary before taxes
so let's do the math for my gross pay my salary is ninety thousand dollars per year and since I
pay myself bi-weekly I divide this by 26 paychecks so each paycheck has a gross pay of three thousand
four hundred and sixty one dollars and fifty four cents some jobs will have an hourly wage so in
your pay stub you'll see the number of hours you worked and how much you earned per hour
you might also see overtime where you get paid a higher hourly wage for those extra hours and
you might see commissions tips and vacation pay which is usually about four percent of your gross
pay again this is a simple example I pay myself a fixed salary nothing else you will notice that in
each section you have two columns the amounts for the current pay period these two weeks and
YTD which is year to date YTD is just a running total of your income taxes CPP and net pay that
you've accumulated since the start of the Year again this is the first paycheck of the year so
both columns are equal every employer will have different deductions but for all Canadians the
two largest deductions you will see are Income Tax and CPP the Canadian pension plan for income
tax this is the combination of federal tax that all Canadians pay and provincial tax
which depends on your Province for some provinces such as Quebec it is common to see the provincial
tax as a separate item on your pay stub but here in Ontario they're usually combined I've already
gone over the federal tax brackets in detail in my past video so check that out Ontario tax rates
are pretty simple so I'll go through them very quickly they start at five percent for the first
fifty thousand dollars of income then they jump up to nine percent for the next fifty thousand
and after that they're pretty steady at 11 then 12 percent and then 13 for every fifty thousand
dollars or so for Ontario taxes my rule of thumb when doing quick calculations is just to add 10 on
top of the federal tax rates and since my salary is ninety thousand dollars I fall in the second
tax bracket both for federal and provincial taxes so here you can see for a pre-tax or gross pay of
three thousand four hundred and sixty one dollars I am paying seven hundred and thirteen dollars in
income tax so I am paying about twenty point six percent of my paycheck in taxes that hurts but it
is better than last year which I'll get to in a minute next we have the CPP Canadian pension plan
this is a federal pension plan that all Canadians pay into and when you retire you get to take that
money out so this isn't really a tax because you do get that money back but while you're working
the CPP is deducted from your paycheck note that if you live in Quebec instead of CPP you'll pay
into the qpp which is very similar here you can see that I am paying almost two hundred dollars
in CPP contributions from each paycheck let's do the math to see how I got this number in my
video on the 2023 three tax changes I showed that the CPP rate increased this year to 5.95 percent
but there is a CPP exemption of 3 500 meaning that no one pays CPP on their first 3 500 of income so
we take my total salary ninety thousand dollars and we subtract that 3 500 exemption that gives
us eighty six thousand five hundred dollars now we multiply this by the CPP rate 5.95 giving us
5146.75 that's how much CPP we should be paying throughout the year but don't worry the actual
amount we pay will be much less just like our salary and our taxes this money is spread out
throughout the year and we have 26 paychecks so dividing by 26 we get our CPP contribution of
197.95 and looking at our pay stub that's exactly how much I pay but remember for my last video
there is an annual maximum that you can contribute to the CPP and for 2023 that limit is 3754.45 so
here's what happens every two weeks I will pay that 197 dollars to CPP but towards the end of
the year around September in my case I will have reached the CPP maximum at that point I no longer
pay into CPP those deductions will automatically stop and for the rest of the year my net pay the
money that goes into my pocket increases by about two hundred dollars I'll show you proof in just a
minute so here is my simple pay stub for 2023 I have a gross pay of three thousand four hundred
and sixty one dollars and combining my income tax and CPP I have a total tax deduction of
nine hundred and eleven dollars that gives me a net pay of 2549.82 that's how much money goes
into my bank account now let's compare this to the same pay stub from last last year 2022 to
prove that my taxes were overall reduced here we are notice the date at the top January 20th 2022
so one year ago again my salary did not change in 2022. I was still paying myself the same salary
of ninety thousand dollars so you'll notice that the gross pay is identical three thousand four
hundred and sixty one dollars but right off the bat you'll notice that my net pay was lower by
Twenty Dollars last year for 2023 my salary was the same but my net pay was increased by Twenty
Dollars remember for my last video I said that for 2023 we'll see an increase in CPP payments that's
true but we'll see an even greater reduction of our taxes so overall you can expect more money
in your pocket and that's exactly what we see in 2022 I was only paying 189 dollars in CPP payments
so for 2023 I saw a nine dollar increase in CPP deductions but in 2022 I was paying
significantly more in income taxes I was paying 741 dollars every paycheck in taxes so for 2023
my tax bill was reduced by 27 every two weeks remember how I said that once you reach that
annual limit for CPP those deductions stop let's see proof of that from last year once again in
2022 I was paying 189 dollars every paycheck into the CPP fast forward to September 29th and you see
that my CPP deductions dropped to zero in the year-to-date column you can see that I reached
the maximum limit for 2022 that limit was 3499.80 when that happened my gross pay and income taxes
were unchanged but my CPP deductions stopped so for the rest of the year my net pay increased by
189 dollars that's huge now let's see a more detailed pay stub for my past job back before
I quit and became a full-time business owner this format is a little different but we have the same
sections gross pay taxes and deductions and net pay for this job I was a software engineer with a
salary of about eighty thousand dollars but what I really want to highlight with this example is
the long list of deductions and taxable benefits this is more representative of what your pay stub
probably looks like once again the largest deductions are income taxes and CPP but we
have many others let's start with EI Employment Insurance employment insurance or EI is a federal
program that we all pay into and it acts as a safety net to help support us if we lose our job
through no fault of our own while you're trying to find a new job you can claim unemployment benefits
and collect up to 55 percent of your earnings just like with the CPP these earnings are capped at 61
500 for 2023. so if you become unemployed you can earn up to 55 of this number giving you up
to six hundred and fifty dollars per week to help keep you afloat but this month money won't last
forever you have between 14 weeks and 45 weeks to find a new job remember at the start of the video
I said that I choose not to pay into Employment Insurance because I am self-employed I have that
choice but when you work for someone else you have to pay into EI and your employer pays into it as
well for 2023 the EI premium rate that's how much you pay is 1.63 percent of your paycheck and again
like CPP it has an annual maximum of one thousand and two dollars and 45 cents let's look at my pay
stub to see the math back in 2020 the EI rate was 1.58 so we take my gross pay 2956.73 and
we multiply it by 1.58 percent that gives us our EI deduction of 46.72 cents just like CPP I paid
this 46 dollars every two weeks until I reached the annual limit at which point those deduction
stop and my take-home pay gets increased the next deduction you'll see is LTD of 27 LTD stands for
long-term disability coverage this is a common insurance plan that your employer pays into
it's designed to protect you and pay you if you become injured or ill and are no longer able to
work next we have RPP registered pension plan this is a retirement pension plan that we pay
into and our employer matches our contributions again this will depend on your employer but the
way it worked at my job was I contributed four percent of my paycheck into the pension plan and
my employer matched my contribution by putting in five percent so in total I collected nine percent
of my paycheck into my retirement fund we'll do the math really quickly take my gross pay 2956
dollars multiply by four percent and you get my RPP contribution 118.27 this money was invested
in a group pension plan and it acted like an rrsp contribution allowing me to reduce my tax
bill but it also took away from my available rrsp contribution room I talked about this in
detail in my rrsp explained videos here those are all of my deductions again these will depend on
your job for example you might have union fees that come out of your paycheck in the rightmost
column you will see taxable benefits again this will depend on your employer but at my job these
weren't direct deductions these were benefits that my employer provided for me I didn't receive cash
but I did receive a value so I was taxed on these benefits at the top we have a common one parking
while I was working there my employer paid for a parking pass the company paid for this benefit
on my behalf I didn't have to pay for the parking pass but I did have to pay taxes on it that's why
it's called a taxable benefit and at the end of the year when I get my T4 I will see this
taxable benefit in box 40. another taxable benefit you'll probably see is Group Insurance this is the
company health insurance policy which covers the dental care Vision physiotherapy Etc again the
company pays for it but I have to pay taxes on it so for my pay stub you can see the total taxable
benefits for a hundred dollars and 31 cents but it's not deducted for my pay it's built into my
tax bill the actual deductions like income tax CPP EI Etc these totaled 869.97 that's what comes out
of my paycheck giving me a net pay of 2086.76 so there you have it guys that's how you read a
pay stub in Canada and all the payroll deductions that you need to know I know taxes aren't the most
exciting thing in the world but it's so important to learn the rules so you can make the most of
your money I'll always be here to help but make sure you watch my Canadian tax guide to get you
started thanks for watching guys and be sure to like comment and subscribe if you found this video
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thanks everyone and I'll see you guys on the next episode of the Canadian in a t-shirt bye guys