By Sheryl Smolkin
Have you noticed that your most recent pay cheque is higher than usual? That could be because you have paid the maximum in Canada Pension Plan (CPP) and (EI) Employment Insurance Premiums for the year.
The total amount you must contribute to CPP in 2015 is:
($53,600 [maximum earnings] – $3,500 [basic exemption]) x 4.95% = $2,479.95
This amount is matched by your employer.
Similarly, the annual Employment Insurance (EI) maximum earnings are $49,500 with an employee contribution rate of 1.88%. Therefore the maximum EI contribution you have to make this year is $930.60. Your employer must remit 1.4 times the maximum premium you pay up to $1,302.84.
These annual maximum CPP and EI contributions apply to each job you hold with different employers. So if you leave one job during the year to start work with another company, your new employer also has to deduct EI premiums without taking into account what was paid by the previous employer. This is the case even if you have paid the maximum premium amount during your previous employment.
Also, if you have several part-time jobs or a part-time job in addition to your full time position, your secondary employer is also obligated to withhold CPP and EI premiums based on your earnings regardless of how much your primary employer is deducting. If as a result, you over- contribute to either program, you will be credited with excess when you file your income tax return for the year.
That means if you earned $50,000 in the first half of the year, by early July your pay will go up by 6.83% or about $131.45 per week. If your annual salary is lower, your “Withholding Tax Freedom Day” will occur a little later in the year. But whenever it kicks in, it will feel like you suddenly got a healthy raise.
So what are you going to do with your windfall? How about joining Saskatchewan Pension Plan (SPP) and setting up a monthly deposit equal to the amount you would have paid to the government?
Depending on your income level, you could easily contribute the $2,500 SPP max in the second half of the year. Beginning January 2016 you could elect to continue contributing at a reduced level throughout the coming year. Or in the alternative, you could take a break until later in 2016 when you have again paid the maximum CPP and EI to start saving again in SPP.
A key feature of SPP is that how much you contribute and when is completely up to you. You can change your method or level of contribution at anytime.
Choose from any of the following methods:
- by mail (A contribution form is required )
- in person or by telebanking at your financial institution
- by phone using your credit card (1-800-667-7153)
- online from this website
- directly from your bank account on a pre-authorized contribution schedule (PAC)
Contributions to SPP are permitted up to an annual maximum of $2,500, subject to your available RRSP room. And because SPP contributions (like contributions to an RRSP) are tax deductible, if you are making regular contributions, you could file a Form T1213 Request to Reduce Tax Deductions at Source so your employer remits a lower amount of income taxes during each pay period.
That means that while you can not only build a retirement nest egg in your SPP account once you no longer have to contribute to the CPP and EI programs, you will actually have more disposable income every month.