MATH 10 – UNIT 4
FM. 4
Students are expected to:
• Explain why gross pay and net pay are not the
same.
• Determine the Canadian Pension Plan (CPP),
Employment Insurance (EI), and income tax
deductions for a given gross pay.
• Determine net pay when given deductions (e.g.,
health plans, uniforms, union dues, charitable
donations, payroll tax).
Vocabulary
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earnings
cheque (same as check)
pension
deductions
snowmobile
physical therapist
offshore
pay stub
Key Term
NET PAY – the amount you receive on a
paycheque after deductions have been
taken off. Also called take-home pay
Key Term
DEDUCTIONS – an amount of money
subtracted from gross pay. It includes:
- federal income tax
- CPP ( Canada Pension Plan)
- - Employment Insurance (EI)
It can also include:
- union dues, vacation pay, and health or
dental insurance
Investigate Net Pay
• Please refer to pages 44-45 of your FM
textbook.
Deductions and Net Pay
• Net Income:
– This is the amount made AFTER deductions are taken off
for a variety of things (EI, CPP, RRSP, income tax…)
– Also called “take-home” pay.
• Now that you are familiar with all types of GROSS
salary calculations (Lessons 2.1-2.3), let’s factor in
some deductions to get a truer picture of what
people like you and I make in Canada.
CPP – Canadian Pension Plan
• Provides you with a pension when you retire
• Both you and your employer contribute the
same amount each paycheque.
• The 2010 Contribution Rate is 4.95% of
everyone’s gross annual income.
CPP Example and Yearly Max
• 2010 Contribution Rate - 4.95% of gross annual
income
• Example:
• If your annual salary is $65,000, how much will you
contribute to CPP over the year?
• $65,000 x 0.0495 = $3217.50/yr
• However, the federal government sets a limit of how
much CPP they can take: In 2010 the max CPP was
$2163.15.
EI Premium
• Employment Insurance Premium
• The government collects 1.4 times from your
employer as from you. So if you contributed
$1.00, your employer would contribute $1.40.
• In the year 2010:
– EI Rate is 1.73% of an employee’s GROSS income
Example
• If Tara's gross earnings are $12 987.00 how
much will she pay in CPP? (rate of 4.95%)
Example
• If Tara's gross earnings are $12 987.00 how
much will she pay in EI? (rate 1.73%)
• What is Tara’s net earnings?
Example
• If Brandon’s gross earnings are $3 876.00
how much will he pay in EI? (rate 1.73%)
• How much in CPP? (4.95%)
• What is his net earnings?
Federal Tax
Federal tax rates for 2010 are:
• 15% on the first $40,970 of taxable income,
+
• 22% on the next $40,971 of taxable income
(on the portion of taxable income
between $40,970 and $81,941), +
• 26% on the next $45,080 of taxable income
(on the portion of taxable income
between $81,941 and $127,021), +
• 29% of taxable income over $127,021.
IF you made $92 000 last year
how much would you pay in federal
income tax?
Step 1:
Calculate the 15% tax deduction for the first $40,970.
Step 2:
Calculate the 22% tax deduction for the next $40,971.
Step 3:
Calculate the 26% tax deduction for the remaining income.
(how much is remaining untaxed?)
Step 4:
How much income tax did you pay?
Step 5: How much is your net income?
Nova Scotia Provincial Tax
• 10% of taxable income
Build Your Skills
1. If the federal tax rate is 15%, how much is
deducted from your $750.00 paycheque?
$750.00 x 0.15
=$112.50 deduction
2. If your short-term disability insurance rate is
0.5%, what do you pay if your paycheque is
$300.00?
$300.00 x 0.005
= $1.50 would be paid
3. If your Canada Pension Plan (CPP)
contribution rate is 4.95% and your salary is
$1578.00 every two weeks, what will be the
CPP deduction?
$1578.00 x 0.0495
= $78.11 deduction
4. Samantha’s monthly taxable income was
$3276.54. If she paid $757.24 in taxes, what
percentage of her taxable income did she pay?
$757.24 ÷ $3276.54
=0.2311
=0.2311 x 100
=23.11%
5. Patricia’s before-tax deductions amounted to
$75.47 on a gross salary of $700.00.
A) If she paid $93.68 in federal tax, what is her
tax rate?
$93.68 ÷ $700.00
=.1338
.1338 × 100
=13.38%
5. Patricia’s before-tax deductions amounted to
$75.47 on a gross salary of $700.00.
B) If she paid $36.85 in territorial tax, what is
her tax rate?
$36.85 ÷ 700.00
=.0526
.0526 × 100
=5.26%
6. Hans paid $37.51 Employment Insurance (EI)
on his taxable monthly income of $2168.21.
What is the EI rate?
$37.51 ÷ $2168.21
=0.0173
0.0173 × 100
=1.73 %
7. Randy works at two jobs. In one job, he
earns $325.00/week, and had deductions of
$56.67 federal tax, $13.12 provincial tax,
$16.09 CPP, and $4.14 EI. At his other job, he
earns $567.00/week and pays $79.42 federal
tax, $16.82 provincial tax, and $18.12 CPP.
What is his net income?
Job 1:
Total deductions: $56.67+$13.12+$16.99+$4.14
=$90.92
$325.00−$90.92
=$234.08
Job 2:
Total deductions: $79.42+$16.82+$18.12
=$114.36
$567.00−$114.36
=$452.64
$234.08 + $452.64
= $686.72
• 8. As a part-time college instructor, Kathy
teaches an introductory course on Mexican
history. She has a biweekly gross income of
$3654.75. Her before-tax deductions include
a short-term disability premium of 0.5%, union
dues of 3.1% and a pension amount of 4%. If
she pays federal tax at a rate of 18.5%,
provincial tas at a rate of 6.2% CPP at 4.95%
and EI at 2.2%, what is her net income?
Short-term disability
$3654.75 × 0.005
=$18.27
Union dues
$3654.75 × 0.031
=$113.30
Short Term $18.27
Union Dues $113.30
Pension
$3654.75 × 0.04
=$146.19
Gross income
$18.27+$113.30+$146.19
=$277.76
$3654.75 − $277.76
=$3376.99
Gross Income $3376.99
Federal Tax
$3376.99 × 0.185
=$624.74
Provincial Tax
$3376.99 × 0.062
=$209.37
CPP
$3376.99 × 0.0495
=$167.16
EI $3376.99 × 0.022
=74.29
$624.74+$209.37+$167.16+$74.29
=$1075.56 (TOTAL OF ALL DEDUCTIONS!)
$3376.99−$1075.56
=$2301.43
Example # 1
Refer to page 46-47
Classwork
- Page 48
- Questions 1-4
Homework
- Page 48
- Question # 5
Example # 2
Refer to pages 49-51.
Note: There are some errors of this pages due to tax
calculations. Please download online.
Classwork
Questions # 1-7 p. 52
Homework
Questions 8-11 p. 53
Reference
http://www.novascotia.ca/finance/en/home/tax
ation/tax101/harmonizedsalestax/default.aspx