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On more than one occasion, I’ve been approached by college aged kids wanting to know why they had to pay income taxes in April. They had income taxes deducted on their pay cheques, but they realized far too late that it wasn’t enough. How does this happen and what can part time employees, or employees working at more than one job, do to ensure come tax time they are not blindsided by a tax bill?
The issue arises not from the employer but from the employee. Some people work multiple part time jobs in a year and while there is nothing wrong with this, each employer is unaware or has not adjusted the taxes withheld for the fact that other income is being made by the employee. Every employee is able to make about $11,000 a year tax free. This is called your basic federal exemption. The provincial exemption varies; however, for this purpose keep $11,000 in mind. If you work part time, or at multiple employers within the year, you should be aware of the basic exemption amount. Since payroll departments know of this exemption, often they will not withhold taxes on yearly wages estimated at less than this amount, or will withhold amounts based upon your projected income at THAT JOB. But what happens when one person works three part time jobs and combined he / she make $25,000 per year?
If each employer thinks that the employee has made less than the exemption, no taxes should be withheld. In fact, all three of your employers should be withholding taxes based upon a $25,000 yearly income rather than say an $8,000 a year one made solely at one employer. IF YOU KNOW that you will be making more than $11,000 in income per year at all your jobs, let your payroll department(s) know!!! If your employer(s) use Blue Canvas as a payroll provider, they can easily adjust the taxes they withhold to consider your true tax bracket based upon your estimated income for the year. Ask your payroll representative for a TD1 form, or revise the current one. This will make it easier for them to calculate your withholding amount.
So remember……if you work(ed) at more than one job during a calendar year, estimate your total combined income for the year and let each employer know. (Tips are subject to taxes too, so include these in your projection.) This way, there will be no unexpected surprises come tax time and maybe, just maybe, a bit of a refund!