Bonus method of tax

[orangetea]

A buddy of mine received a bonus and was taxed almost 40%.

Bonus approx $2500 - tax = $1500.

His annual income is 50k.

What are the rates? I can't find anything in Google.

Thanks.

[insomnioe]

Should be taxed as plain income:

http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html

15% on the first $38,832 of taxable income, +
22% on the next $38,832 of taxable income (on the portion of taxable income between $38,832 and $77,664), +
26% on the next $48,600 of taxable income (on the portion of taxable income between $77,664 and $126,264), +
29% of taxable income over $126,264.

Edit: So the highest bracket he falls into.

[Rehan]

A buddy of mine received a bonus and was taxed almost 40%.

Bonus approx $2500 - tax = $1500.

His annual income is 50k.

What are the rates? I can't find anything in Google.

Thanks. That sounds about right. According to the payroll deductions calculator at https://apps.cra-arc.gc.ca/ebci/rhpd/startLanguage.do?lang=English

Salary or wages for the pay period 4,150.00
Total EI insurable earnings for the pay period 6,650.00
Taxable income 4,150.00
Cash income for the pay period 4,150.00
Federal tax deductions 494.30
Provincial tax deductions 275.41
Requested additional tax deduction 0.00
Total tax on income 769.71
CPP deductions 190.99
EI deductions 71.80
Amounts deducted at source 0.00
Total deductions on income 1,032.50

Total current bonus payable 2,500.00
Federal tax deductions on bonus 550.00
Provincial tax deductions on bonus 228.75
Total tax deductions on bonus 778.75
CPP deductions on bonus 123.75
EI deductions on bonus 43.25
RRSP, etc., deducted from current bonus 0.00
Total deductions on bonus 945.75 (37.8% of $2500)

Total deductions on salary income and bonus 1,978.25
Net amount 4,671.75

[speedyforme]

I did overtime recently and was taxed 50%. I literally did the math and I had 49.999% left.

BS

[orangetea]

Should be taxed as plain income:

http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html

15% on the first $38,832 of taxable income, +
22% on the next $38,832 of taxable income (on the portion of taxable income between $38,832 and $77,664), +
26% on the next $48,600 of taxable income (on the portion of taxable income between $77,664 and $126,264), +
29% of taxable income over $126,264.

Edit: So the highest bracket he falls into.

But isn't the highest 29%, not %37, right? :(

[charliebrown]

But isn't the highest 29%, not %37, right? :(

there's also provincial tax :)

[orangetea]

there's also provincial tax :)

I'm confused, what's the rate of the provincial tax?

[charliebrown]

I'm confused, what's the rate of the provincial tax?

It depends on the province:
http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2008-Personal-Tax

Thus, when ppl say their marginal tax rate is 40+%, it's a combination of the 29% federal rate + x% provincial

[orangetea]

It depends on the province:
http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2008-Personal-Tax

Thus, when ppl say their marginal tax rate is 40+%, it's a combination of the 29% federal rate + x% provincial

Can he claim some back in next year's income tax declaration?

[orangetea]

:arrowu:

So why did they overcharge him if he'll get it back next year?

Is it HR's mistake for making him overpay taxes?

[cadave]

So why did they overcharge him if he'll get it back next year?

Is it HR's mistake for making him overpay taxes?

This is just the way Canada's income tax withholding system works... it's not HR's mistake.

[AllWheelDrift]

So why did they overcharge him if he'll get it back next year?

Is it HR's mistake for making him overpay taxes?
Assuming he doesn't put it into RRSPs or somehow generate a tax deduction, he wasn't overcharged. Based on his marginal tax rate, for every extra $1.00 your friend makes, he has to pay almost $0.40 in taxes.

[Rehan]

Assuming he doesn't put it into RRSPs or somehow generate a tax deduction, he wasn't overcharged. Based on his marginal tax rate, for every extra $1.00 your friend makes, he has to pay almost $0.40 in taxes. Exactly. The marginal tax rate at $50k is 31.15% (in Ontario), which matches exactly the $778.75 federal + provincial tax on the $2500 bonus. The rest of the deduction was due to CPP and EI.

The company was correct to deduct about 38% and your friend shouldn't expect to get any of this back when he files the tax return.