fbpx

How Much is $1 Earned Worth ?

in Income Tax

I will leave the philosophical discussions out of this about whether we are being paid sufficiently or whether a dollar is worth what it should be worth, the more interesting discussion is, what is $1 earned actually able to buy after it gets into my grubby hands?

First you must pay your income tax on that $1 earned (let’s leave out investment income, maybe save that for a different day), but you also need to pay your EI and CPP premiums on that poor earned $1 as well.

The Diminishing Dollar Earned
  
Income Earned$1.00
  
Federal Tax$0.24
Ontario Tax$0.08
CPP$0.05
EI$0.01
  
Take Home Pay$0.62
  
HST$0.08
  
Actual Dollar Value$0.54

So my $1 earned is really only 54 cents? Yes, I have made some assumptions

  • Provincial income tax is about 8.65% in Ontario for someone making between $50K and $90K
  • Federal income tax rate is about 24% for the same bracket
  • The HST in Ontario is 13% (which you will have to pay on most things you buy these days)
  • All deductions, and tax lowering capabilities are ignored to make for a much more dramatic number
Money, Coins, Pennies
A Penny Earned is Really a Half-Penny?

So here we have 54 cents for every dollar earned. If I want to go out and buy a nice Big Screen TV for Christmas (because I deserve it), let’s assume this monster is going to cost $1100.00, this means I have to earn

$1100/0.54  or $2037 to buy that TV

A better number for this simulation might be 65 cents, but at the end of it, many folks get tripped up when they think about their Income as a Gross Income number, when in fact they really should be thinking about what their Net Income is. What is Net Income?

Net Income = Gross Income – Provincial Tax – Fed Tax – CPP – EI – Insurance Costs – Benefits costs – Other income expenses

The last time someone told you how much they made as income, did they tell you their Net or Gross Income? Gross of course, no one wants to think about how much they really earn.

{ 7 comments }

  • Phil December 17, 2013, 2:39 PM

    Great Post! Not many realize how much is lost working for a living… – Cheers.

    Reply
  • Matt December 17, 2013, 7:27 AM

    While I agree with Robert M that some of these constructs are more than a little frustrating it is Fascinating to see how much of the dollar earned becomes usable money – I think they should teach this to kids so when they start working they think in terms of Net income rather than spending gross.

    Have a great holiday!

    Reply
  • Bet Crooks December 16, 2013, 11:13 AM

    Ouch. Did you have to point this out on a Monday morning when there’s 2 feet of snow and arctic winds gusting out there? It hardly seems fair to have to get to work just so someone/thing else can get 46 cents of every dollar!

    Reply
    • bigcajunman December 16, 2013, 11:16 AM

      Understanding the value of each dollar, helps us make informed decisions about what we spend money on? As for the snow and arctic temps, hey, welcome to Canada! Who decided that Ottawa would be a great place to put a village?

      Reply
      • Bet Crooks December 17, 2013, 10:21 PM

        Perhaps in the relevant First Nations language “Ottawa” means “Place too cold for normal people to live which also gets vicious thunderstorms in summer.” ?

        Reply
  • robert_m December 16, 2013, 6:49 AM

    Definitely something to think about, especially with the current meeting to increase cpp premiums.

    Once again, I see red, not your fault, when the term EI is used. Only a politician can destroy the English language and think that it is a good thing. Shades of 1984.

    But I digress. Heading out with the better half this week for Christmas. Have a great holiday, BCM. All the best for 2014.

    Reply

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this:
/