Q.

I am 45 years old and earning $100,000 and $120,000, both on salary, from two jobs in Canada. Both my employers are deducting 35 per cent for taxes. Even after that, will I owe an additional amount to the

Canada Revenue Agency (CRA)

? Since I am doing two jobs is my

Canada Pension Plan

(CPP) and

Employment Insurance

(EI) credited twice? What will be the impact on my taxes and in retirement because of this?

—Thanks, Lexi

FP Answers:

The tax payable for income in the $110,000 to $120,000 range would normally be in the 20 per cent to 30 per cent range, Lexi, depending on where you live. For example, the rates for $110,000 of income in British Columbia are about 22 per cent and for $120,000 about 23 per cent. Employers are required to follow income tax tables to ensure that they withhold and remit the correct amount of tax to the government for salary and bonuses paid to employees. So, your employers are probably not withholding 35 per cent as that high a tax rate would not apply to these income ranges.

If you combined both salaries, $230,000 of income would result in an average tax rate of about 33 per cent, Lexi. This is due to Canada’s progressive tax rates with higher tax payable on higher levels of income. Since your payroll tax withheld will be about 22 per cent to 23 per cent at each employer, it is likely that you will have a tax balance owing: the roughly 10 per cent shortfall. Keep in mind that you will have payroll deductions at each employer that will result in double payments to CPP and EI. Unfortunately, there is no workaround for these deductions, as the employers must remit these amounts. Fortunately, when you file your tax return, you will be able to reclaim the overpayments of CPP and EI.

There is a potential solution for you. There is a form called TD1 Personal Tax Credits Return. Most employees complete this form when they start working at a new employer. It is designed to allow employers to factor in various tax credits to calculate net income for payroll purposes. For example, if people are paying tuition or qualify for the disability amount or make many charitable contributions, these will all reduce their tax when they file their tax return.

By completing the form and indicating any credits you may qualify for, you could end up receiving a higher net pay on your paycheques, as factoring in the credits can lower your tax withholding.

Since the first roughly $15,000 of income an individual earns each year is tax-free, due to the basic personal amount tax credit, when you are receiving income from multiple sources your tax withheld is likely to be too low. Each payor assumes the recipient is entitled to that basic personal amount at the very least.

There are two other aspects of the form that apply to your situation, Lexi. One is that disclosure of dual employment must be disclosed on Page 2 of the TD1 form. Individuals with two employers cannot claim the basic personal amount twice and there is a box on the form to confirm dual employment. Second, the form includes a box on Page 2 where you specify exactly how much additional income tax you would like to be remitted to CRA.

So an employee can request to have additional tax withheld at their discretion to avoid a situation where they owe tax in April. Failing this, you have to plan to owe the tax or try to find ways to mitigate the tax, such as with

registered retirement savings plan

(RRSP) contributions.

Another form that may apply to employees worried about tax withholding is form T1213 Request to Reduce Tax Deductions at Source. It allows a taxpayer to apply for approval for their employer to reduce deductions at source. You might do this if you have larger tax deductions such as childcare expenses, spousal support payments or various other deductions or credits. This way you can receive your tax refund over the year, effectively, via reduced payroll withholding tax rather than waiting until you file your taxes.

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If you don’t do anything, Lexi, there could be consequences if not enough tax is remitted to CRA via payroll deductions. If an individual owes tax of $3,000 in two consecutive tax years, CRA will request quarterly tax instalments so that a taxpayer is prepaying some of their anticipated tax owing for the year. Failure to do so could result in interest and penalties.

Since there is about a 10 per cent shortfall for your estimated tax versus the amount your employer is withholding, Lexi, you should consider some of the above suggestions.

Andrew Dobson is a fee-only, advice-only certified financial planner (CFP) and chartered investment manager (CIM) at Objective Financial Partners Inc. in London, Ont. He does not sell any financial products whatsoever. He can be reached at adobson@objectivecfp.com.