Starting a career can be taxing
(NC)—Every year thousands of young Canadians leave school to enter the workforce. This can mean leaving the comforts of home and becoming independent, but earning a steady pay cheque can also have a significant impact on their tax situation.
“Aside from learning a new job or finding a place to live, starting your career means thinking about taxes,” explains Cleo Hamel, a senior tax analyst at H&R Block Canada. “Making good decisions now can make things easier at tax time, as well as help plan for the future.”
The new employer's payroll department will require an employee to complete a TD1 Personal Tax Credits Return form. It asks basic questions and determines the amount of federal and provincial tax to be withheld from your pay cheque. Information is available at 1-800-472-5625.
“Most employees fill out a TD1 form once, but if your tax situation changes you should update that form,” says Hamel. “It could reduce your pay cheque deductions.”
Young Canadians may have extra job-related expenses such as new office clothes and dry cleaning. While these expenses are not a tax deduction, anyone with employment income can claim the Canada Employment Amount, which means about $164 in tax savings.
Employees should also keep track of their health care premiums. Even with an employer benefit plan, many employees pay a monthly amount to fund the program. This can be claimed as a medical expense. The annual payment may be identified in Box 85 of their T4 slip.
Also, the earning of employment income builds contribution room for a Registered Retirement Savings Plan (RRSP). Money deposited and interest earned in an RRSP are tax exempt until withdrawn.
“The amount you are allowed to contribute to your RRSP depends on your income,” says Hamel. “Starting your career allows you to start your retirement savings while enjoying the tax benefits.”
For more information visit www.hrblock.ca.
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