This was written a few years ago, but is more a discussion of the “I don’t want to make more money, so I can pay less tax” argument that I keep hearing. If you make more, your income is not completely taxed in the new bracket, only the money in that bracket.
A discussion arose about whether as a “rich Ontarian” would you work 20% less to avoid the new “tax on the rich” that was proposed on the Liberals in their ill-fated budget last week ? Jon Chevreau’s tweet seems to have started the discussion:
I think if I was close enough to the $150K “filthy, stinking rich bastard” line (as delineated by the Liberals budget) I wouldn’t worry about it too much, although I find it interesting that Jon’s tweet stated: "If I were a high-income Ontario citizen making much more than $150K/year...", what do you mean IF brother? JC, you are not fooling anyone!
Getting back to the discussion at hand, if I decided this was the strategy I’d want to take to “stick it to the tax man” and stay in a lower (provincial) tax bracket how would I do it?
The obvious choice is to simply take every Monday or Friday off and thus make every weekend a long(er) weekend, however, would my employer respect my 4 day work week? My suspicion is no, they would simply expect 5 days of work out of my 4 day work week (at least if I worked in the Private Sector).
I would prefer to take the extra 50-ish days vacation (thus another 10 weeks of vacation), because then you can take entire months off. I have found that when you take an entire month off, no one expects you to do any work during that time period. You can then take another month off, along with all your regular vacation!
Do I think this is a good idea? Taking off time to lower your income, so you pay less tax? I think I’d try to make more, so the tax didn’t hurt that much, but that is only my opinion. Many firms do allow for “income averaging” where you can take unpaid leave of absence, but have the loss of income averaged over the whole year, which would be the option I would choose (if I was to want to take off 20% more time).
What are your thoughts?
Typically people that make that kind of money will find it difficult to disconnect from their work 1 day a week anyway. They would take a pay-cut and just answer emails on their phones and take calls I’m sure. I would be impressed if someone making over $150K could actually do it.
I would cut my salary but be very careful to not work 5 days in 4. I would love to go down to 4 now but financially not feasible. I am getting better at ensuring my work week is balanced though – working what I’m paid for not crazy 50 – 60 hour weeks!
I would be tempted to adjust my lifestyle to keep my existing job but work 1 day less per week. Unfortunately, if I want to keep my job, that is not going to happen. 🙂
Oh well. Retire at 55 remains the plan. Another 15 years of saving and investing to go!
Time is more important than money anyhow 😉
Certainly for my job if I tried to take Fridays off in return for a 20% pay cut, all I would achieve is the 20% pay cut. There would be no change in my responsibilities. My employer doesn’t really care how many hours I work.
So, if I wanted to work less I’d have to take extra vacation days. Trying to save on taxes wouldn’t really be the reason I’d do this. More free time would be the driver.
Unfortunately, trying to negotiate such a deal sounds like disloyalty. There is also the risk of becoming less relevant at work after taking a full month off.
It would actually only be about 9 extra weeks of vacation because salaried people only work about 45-47 weeks right now after you take into account vacation and statutory holidays.
Still a hullabaloo of vacation time! 🙂
Yes most bosses are not happy that you DON’T want to work every waking hour for them, very few folks can negotiate that kind of a deal without some repercussions.
Time is money? Not really Time is more important than money in many ways.
If you’re making 20% less you have less money to budget for extended holidays so I think I’d prefer the shorter work week. However, if everyone went the route of making 20% less the Ontario government’s plans of more tax revenue would be dashed. Sadly, this would likely result in increased taxes for all levels, not just the wealthy, to make up the difference. I don’t see any end to tax increases unless there are massive cuts to services to reduce debt.
So you are saying if they keep increasing taxes we’d all end up quitting? 🙂 Yes, I am being silly on that one, but high(er) taxes isn’t really the answer (unless it is taxing everyone else but me, then that is OK too).
I agree raising taxes isn’t necessarily the right answer but the debt has to be reduced somehow. I think Ontarians are in for some reduction in services & more sneaky user fees.
THAT I agree on completely! Time to pay the piper.
I think the right choice depends a lot on the nature of your job. Income averaging sounds good if you want to take an extended leave, especially good if you take income out of the killer 46% marginal tax rate in Ontario. But beware that you become one of the creditors of your employer when you do that. You don’t want your employer to go out of business when they owe you a year’s pay.
I really doubt many people would work less to avoid the extra tax, it’s not like marginal tax rates are approaching 100%. I don’t think the details have been released, but it is probably something like 1% on income above $150,000. The reports I have seen say 260,000 people would be affected and it would bring in $650M in extra revenue. So that would be an average of $2500 per person affected. For people affected, working 80% time results in a reduction of about $20,000 or more in net income, sticking it to the tax man in this way results in a $2500 loss for the taxman but a $20,000 loss for the individual.
It seemed more like a paper exercise to me, I can’t see working less to escape taxes, but I guess there are folks who think that way.