Social security for retirement benefits (6.2% each up to about $120,000 - there’s the big difference).Federal Insurance Contributions Act (FICA), which includes:.Employment insurance (EI), which provides unemployment benefits (up to about $50,000, employees pay 1.88% and employers pay 1.4x the employee rate - 2.63%).Canada Pension Plan (CPP), which pays for retirement benefits (4.95% each up to about $50,000 in earnings).In both countries self-employed people pay both the employee and employer side. Both contribute to retirement and unemployment programs, and both are mostly split evenly between employees and employers.
The payroll tax concept is similar between the two countries. In fact, most people earning up to $120,000 will pay much more in payroll tax than income tax. Those who move to the US and earn between $50,000 and $120,000 find US payroll tax to be a shocker. (On top of taxes, I pay high health care premiums, but that’s another topic.) My income-related taxes went up, mainly because of payroll tax. This may be true for some situations, but it wasn’t for mine. They must be higher: Canada is more socialized, especially with its universal health care system that residents pay little to nothing for. Income tax and payroll tax are calculated together in both US and Canada tax returns.Ĭonventional wisdom says taxes are higher in Canada than the US. I say "income-related” because payroll tax is not technically income tax, but it is directly related to your income. In this post, I’ll explain the another reason: payroll tax. In my second post I explained deductions and credits, which can be a confusing concept especially when comparing Canada and the US.ĭeductions are credits are one reason income tax rates have little to do with how much income-related tax you actually pay. In my first post I wrote about the differences in tax agencies, impact of moving, filing status, and income tax rates.
VENTURE FORTHE PAYROLL SERIES
This is the third in a series of posts on the topic. Although the principles in each country are similar, the implementation is quite different.
It’s important for people considering moving across the border to understand the difference between the two countries' personal tax systems. I grew up in Canada, went to university and worked in the US, moved back to Canada for a few years, and now live back in the US. The US-Canada border is one of the friendliest in the world. As a result, many people move back and forth across the border.
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