MWA10 2.4 Deductions

1. Deductions and Net Pay
Slide 1
In an earlier lesson, you learned how to calculate gross pay.
Remember, gross pay is the pay before deductions.
In this lesson, you will be introduced to various payroll
deductions and how to calculate net pay.
Definitions:
Net Pay: refers to the money paid to an
employee after deductions have been made.
Benefits: a range of programs that benefit employees; these
vary from employer to employer. Example: dental plan

2. Slide 2
Deductions:
• Federal and provincial income tax
• CPP – Canadian Pension Plan
• EI – Employment Insurance
• Union dues
• Pension plan (company pension plan)
• Benefits – dental, health, etc
Some deductions are not taxable income – this means
that these deductions are calculated before income tax,
CPP and EI.

3. Slide 3
Calculate Gross Pay
Subtract Union Dues
and/or Benefits
Calculate
Income Tax, CPP, EI
Subtract to calculate
Net Pay
Gross Pay
– Union Dues
and/or benefits
= taxable income  Calculate
Income Tax,
CPP, EI
– taxes 
= Net Pay
Hint: Union Dues and Benefit deductions
are usually provided – they usually do not
need to be calculated.

4. Slide 4
The government sets the percent of CPP to be deducted. The
2011 rate for CPP is 4.95%. The government has set up a
personal exemption rate for CPP. The annual exemption rate for
2011 is $3,500.00 per year.
There are three steps to calculating CPP.
1 – you must calculate the personal exemption per pay period.
Personal Exemption = 3500 ÷ # of pay periods
2 – subtract the exemption from the taxable income
3 – multiply the amount from (#2) by the CPP rate (4.95%)
CPP – Canada Pension Plan

5. Slide 5
Example 1a:
At her current job, Susan made $475.00 this week. She does not
pay union dues or benefits. How much will be deducted in CPP?
CPP – Canada Pension Plan
Taxable income = 475.00
Personal Exemption = 3500 ÷ 52 (paid weekly)
= 67.31
Taxable income – exemption = 475 – 67.31 = 407.69
CPP = 407.69 x 0.0495
= 20.18
Answer:
The CPP that will be
deducted is $20.18

6. Slide 6
The government sets the percent of EI to be deducted. The 2011
rate for EI is 1.78%
To calculate EI, the formula is:
EI = taxable income x 0.0178
Example 1b:
At her current job, Susan made $475.00 this week. She does not
pay union dues or benefits. How much will be deducted in EI?
EI – Employment Insurance
Taxable income = 475.00
EI = 475 x 0.0178
= 8.46
Answer:
The EI that will be
deducted is $8.46

7. Slide 7
The government publishes tax
tables to help employers calculate
the amount of federal and provincial
income tax. For more information
regarding tax tables, please refer to
the PowerPoint lesson called “How
to Use Tax Tables”.
Federal and Provincial Income Tax

8. Slide 8
Example 1c:
At her current job, Susan made $475.00 this week. She does not
pay union dues or benefits. How much will be deducted for
federal and provincial income tax if she has a net claim code of 1?
Federal and Provincial Income Tax – continued
Answer:
The Federal Income Tax will be $33.25 and the Provincial
Income Tax will be $20.25.
Taxable income = 475.00
Federal  weekly  claim code 1
Use page 2
Federal income tax = 33.25
NOTE: use the line 471 – 475 and
not the following line 475 – 479.
WHY? Because taxable income is
exactly 475.00
Provincial  weekly  claim code 1
Use page 21
Provincial income tax = 20.25
NOTE: use the line 471 – 475 and
not the following line 475 – 479.
WHY? Because taxable income is
exactly 475.00

9. Slide 9
Example 1d:
At her current job, Susan made $475.00 this week. She does not
pay union dues or benefits and she has a net claim code of 1.
Using the information calculated in Examples 1a – 1c, what will
Susan’s net pay be?
From the previous examples, we know:
CPP = $20.18
EI = $8.46
Federal income tax = 33.25
Provincial income tax = 20.25
Total deductions = 82.14
Net Pay = Gross Pay – Deductions
= 475.00 – 82.14
= 392.86
Answer:
Susan’s net pay will
be $392.86

10. Slide 10
Example 2:
Joseph works at a bakery. He is paid every two weeks (biweekly), pays $55.00 for
union dues and $17.75 for dental benefits each pay period and his net claim code
is 2. If his gross pay last week was $1,340.00, what will his net pay be?
Gross Pay = 1,340.00
Union Dues + Dental Benefits = 55.00 + 17.75 = 72.75
Taxable Income = Gross pay – dues/benefits
= 1340 – 72.75
= 1267.25
CPP personal exemption = 3500 ÷ 26 = 134.62
Taxable income = 1267.25 – 134.62 = 1132.63
CPP = 1132.63 x 0.0495 = 56.07
EI = 1340 x 0.0178 = 23.85
Federal income tax = 179.15 (tax tables page 4)
Remember – use Taxable Income when looking up income tax
Provincial income tax = 65.80 (tax tables page 28)
Total deductions = 56.07 + 23.85 + 179.15 + 65.80 = 324.87
Net Pay = Taxable Income – Deductions
= 1267.25 – 324.87
= 942.38
Answer:
Joseph’s net pay
will be $942.38