Grade by Grade
C. Planning and Financial Management to Help Meet Postsecondary Goals · Planning and Financial Management for Life After High School

Earning Income: Paycheques, Deductions and Taxes

C2.1 C2.3About 70 minutes
Learning goals
  • I can read a pay stub and explain gross pay, deductions and net pay.
  • I can calculate CPP, EI and net pay for a simple paycheque using current rates.
  • I can explain how income tax brackets work and why filing a tax return helps young people.
  • I can use net pay, not gross pay, when I plan a budget.

Words to know

gross pay
Your total earnings before any deductions (hours × hourly wage, or salary).
net pay (take-home pay)
What you actually receive after deductions.
deduction
Money taken off your pay before you receive it, such as CPP, EI and income tax.
CPP (Canada Pension Plan)
A public pension plan; workers 18 and older (and their employers) contribute, and it pays a pension later in life.
EI (Employment Insurance)
A federal program that gives temporary income to eligible workers who lose their job or are on certain leaves; workers and employers pay premiums.
income tax
Tax on income, paid to the federal and provincial governments.
tax bracket
A range of income taxed at a particular rate.
TD1 form
A form you fill out for a new employer so the right amount of income tax is withheld.
T4 slip
A form your employer gives you by the end of February showing what you earned and what was deducted the year before.
HST
Harmonized sales tax. In Ontario it is 13% on most goods and services.

"Where did the rest of my money go?"

Rowan worked 15 hours at his first job and expected exactly 15 × his hourly wage. His first deposit was a little less. He was not cheated: some of his pay went to deductions.

When you plan a budget for your first postsecondary year (Lesson 9), you have to use the money you actually take home. The curriculum's examples for budgeting include paycheque deductions (income tax, Canada Pension Plan contributions, Employment Insurance premiums), and taxes are one of the topics assessed in Ontario's financial literacy graduation requirement.

Minimum wage in Ontario

Ontario's minimum wage changes every October 1. From October 1, 2026:

  • general minimum wage: $17.95 an hour (up from $17.60),
  • student minimum wage: $16.90 an hour, for students under 18 who work 28 hours a week or less during the school year, or any hours during school breaks and summer.

(Source: Government of Ontario announcement, reported by employers and law firms in April 2026.)

Gross pay, deductions, net pay

  • Gross pay = hours × hourly wage (plus overtime, tips or commission, if any).
  • Deductions come off before you are paid.
  • Net pay = gross pay − deductions. This is your take-home pay.

The three main deductions (2026 rates)

  1. Canada Pension Plan (CPP): workers 18 and older contribute 5.95% of earnings above a basic exemption of $3,500 a year. Your employer contributes the same amount. CPP pays you a pension when you retire (and can pay disability and survivor benefits).
  2. Employment Insurance (EI): workers pay 1.63% of insurable earnings (up to a yearly maximum). There is no minimum age. EI can pay temporary income if you lose your job through no fault of your own, or for parental and some other leaves, if you qualify.
  3. Income tax: federal and Ontario. How much is withheld depends on your pay and the TD1 form you fill out when you start. If you expect to earn less in the year than the basic personal amount (the federal amount was $16,452 for 2026), you can say so on the TD1 and little or no tax may be withheld.

(CPP and EI figures are the 2026 payroll rates published by the Canada Revenue Agency.)

Other possible deductions: union dues, workplace pension or benefits, uniforms.

Worked example

Let's calculate Zoe's paycheque (under 18)

Zoe is 17 and works 15 hours a week at the student minimum wage, $16.90 an hour. She filled out her TD1 to show she will earn less than the basic personal amount this year, so no income tax is withheld. Find her gross pay, deductions and net pay for one week.

  1. Gross pay: 15 × $16.90 = $253.50.
  2. CPP: Zoe is under 18, so $0.
  3. EI: 1.63% × 253.50 = 0.0163 × 253.50 ≈ $4.13.
  4. Income tax: $0 (based on her TD1).
  5. Net pay: 253.50 − 4.13 = $249.37.

Zoe's net pay is $249.37 a week. Her only deduction is EI ($4.13).

Worked example

Let's calculate Malik's summer paycheque (19 years old)

Malik is 19 and works a summer job: 37.5 hours a week at $20.00 an hour, paid weekly. For CPP, the yearly $3,500 exemption is spread over 52 weekly pays. Assume his employer withholds $55.00 in income tax (the exact amount comes from CRA's payroll tables and his TD1).

  1. Gross pay: 37.5 × $20.00 = $750.00.
  2. CPP exemption per week: 3,500 ÷ 52 ≈ $67.31. Pensionable amount: 750.00 − 67.31 = $682.69.
  3. CPP: 0.0595 × 682.69 ≈ $40.62.
  4. EI: 0.0163 × 750.00 = 12.225, about $12.23.
  5. Income tax (given): $55.00.
  6. Total deductions: 40.62 + 12.23 + 55.00 = $107.85.
  7. Net pay: 750.00 − 107.85 = $642.15, about 86% of gross.

Malik takes home about $642.15 of his $750.00. For budgeting, he should plan with about $640 a week, not $750.

Where a $750.00 weekly paycheque goes (worked example 2)Gross pay $750.00Net pay (take-home): $642.15Income tax (assumed): $55.00CPP: $40.62EI: $12.23Deductions: 750.00 - 642.15 = $107.85
Most of Malik's pay is take-home pay. The deductions (CPP, EI and income tax) add up to about 14% of his gross pay.

How income tax works: brackets

Canada uses tax brackets. Each rate applies only to the dollars inside its bracket. For 2026:

  • Federal: 14% on taxable income up to $58,523; 20.5% on the next part up to $117,045; then higher rates on higher income.
  • Ontario: 5.05% up to $53,891; 9.15% on the next part; then higher rates.

Then non-refundable tax credits, such as the basic personal amount, reduce the tax. Federally, the basic personal amount means roughly the first $16,452 of income is not taxed. So a student earning $12,000 in a year usually owes no federal income tax.

A common myth: "If my raise puts me in a higher bracket, all my income gets taxed more and I'll take home less." False. Only the dollars above the bracket line pay the higher rate.

Tax brackets: only the dollars ABOVE a line pay the higher rate2026 federal rates (Ontario tax is added separately); income of $70,000 before creditsfirst $58,523 taxed at 14%= $8,193.22next $11,477at 20.5%= $2,352.79$0$58,523$70,000Total federal tax before credits: 8,193.22 + 2,352.79 = $10,546.01Myth buster: a raise into a higher bracket never lowers your take-home pay.(Credits such as the basic personal amount then reduce the tax owed.)
Only the $11,477 above the bracket line is taxed at 20.5%. The first $58,523 is still taxed at 14%.

Filing a tax return: why it pays off, even at 16

By the end of February, each employer gives you a T4 slip showing last year's earnings and deductions. You file a tax return (usually by April 30) with the Canada Revenue Agency (CRA). Many students can file for free using certified software or free tax clinics.

Why file, even if you owe nothing?

  • Get a refund of income tax that was withheld but not owed.
  • Build RRSP room (Lesson 6).
  • From age 19, you are automatically considered for the Canada Groceries and Essentials Benefit (called the GST/HST credit until July 2026), a tax-free quarterly payment for people with low and modest incomes, plus the Ontario Trillium Benefit if eligible. You only get them if you file.
  • Postsecondary students can claim tuition on their return, which can reduce tax now or later.

Taxes you pay when you spend

In Ontario most purchases have 13% HST added at the register. A $40.00 hoodie costs 40 × 1.13 = $45.20. Some items, such as basic groceries, have no HST. Remember HST when you budget.

Just for fun

Canada's federal income tax began in 1917 as a "temporary" measure to help pay for the First World War. More than a century later, it is still going: possibly the longest "temporary" plan in Canadian history.

Hands-on activity

Read a pay stub, build a paycheque calculator

You need: a calculator or spreadsheet, and, if a family member is comfortable sharing, a real pay stub with the amounts covered (you only need to see the labels).

  1. If you have a real pay stub, find: pay period, gross pay, each deduction (CPP, EI, income tax, others), net pay and year-to-date (YTD) totals. If not, use Malik's example.
  2. Build a small calculator (paper table or spreadsheet) with inputs hours, wage and age, and outputs gross, CPP (0 if under 18; otherwise 5.95% × (gross − $67.31) for weekly pay), EI (1.63%), an income tax cell you type in, and net.
  3. Test it with: (a) 12 hours at $16.90, age 16; (b) 30 hours at $17.95, age 18 with $20 tax.
  4. Compare gross and net for (b). What percentage do you keep?
  5. Find out from a family member (or the CRA website) one reason they file a tax return every year.

What to look for: (a) gross $202.80, EI $3.31, net $199.49; (b) gross $538.50, CPP 0.0595 × (538.50 − 67.31) ≈ $28.04, EI ≈ $8.78, tax $20.00, net ≈ $481.68 (about 89% of gross).

Your turn

1

What is the difference between gross pay and net pay?

2

Name the three main paycheque deductions.

3

At what age do workers start contributing to CPP?

4

Kai, 16, works 10 hours at $16.90. Find gross pay, EI and net pay (no income tax withheld).

5

What was Ontario's general minimum wage from October 1, 2026, and the student minimum wage?

6

Give two reasons a 17-year-old with a part-time job should file a tax return.

7

A jacket costs $80 before tax. What is the price with Ontario's 13% HST?

More practice: warm-up

1

What does EI stand for?

2

What form do you fill out for a new employer so the right tax is withheld?

3

What slip shows last year's earnings and deductions?

4

What is Ontario's HST rate?

5

Should you budget using gross pay or net pay?

More practice: on your own

1

Ana, 18, earns $600 gross in a week. Calculate her CPP (weekly exemption $67.31) and EI.

2

Explain why a student who earned $9,000 last year probably got back all the income tax withheld.

3

Using 2026 federal rates, how much federal tax (before credits) is owed on $50,000 of taxable income?

4

Your friend says, "I turned down extra shifts because the extra money would push me into a higher tax bracket." Explain the mistake.

5

What does the Canada Groceries and Essentials Benefit replace, and what must a 19-year-old do to receive it?

Challenge

1

Malik's employer offers him 5 extra hours a week for the rest of the summer at $20.00 an hour. Estimate the extra net pay per week if CPP and EI apply and about 20% of the extra goes to income tax.

2

Calculate total 2026 federal tax before credits on $65,000 of taxable income. Then explain why "my whole income is taxed at 20.5%" is wrong.

3

Explain who benefits from CPP and EI deductions, and why it is reasonable that young workers pay into them.

Check your understanding

Quiz

1.

What is net pay?

2.

Which deduction does not apply to a 16-year-old's paycheque?

3.

A 17-year-old earns $200 gross in a week. EI is 1.63%. What is the EI deduction?

4.

In 2026, federal income tax was 14% up to $58,523 and 20.5% above that. What is the federal tax before credits on $60,000?

5.

Why should a student with a small income file a tax return?

6.

What is the price of a $25.00 item with Ontario's 13% HST?

For parents and teachers

Big idea: Expectation C2.3 lists paycheque deductions (income tax, CPP, EI) among the key considerations for a budget, and C2.1 covers financial responsibility. Taxes and earning are also topics on Ontario's financial literacy graduation requirement.

Figures used (check each year): Ontario minimum wage from October 1, 2026: $17.95 general, $16.90 student. 2026 CPP 5.95% above a $3,500 exemption (age 18+); EI 1.63%; federal basic personal amount $16,452; federal brackets 14% to $58,523, 20.5% to $117,045; Ontario 5.05% to $53,891. The GST/HST credit was renamed the Canada Groceries and Essentials Benefit in July 2026.

How to help: If you can, show your teen a pay stub or T4 with amounts covered. When they get a job, help them fill out the TD1 and file their first return (free clinics and certified free software exist).

Common difficulties:

  • Forgetting the CPP exemption or applying CPP to under-18 workers.
  • The tax-bracket myth. Use the diagram: only dollars above the line pay more.
  • Budgeting with gross pay. Always plan with net pay.