Do you have a teenager at work? It’s time to prepare it for tax joys!
Over the next few months, nearly 150,000 taxpayers under the age of 18 will file a tax return with the Quebec tax authorities and another with the federal government. Will one of your children be there?
In any case, regardless of the earnings he earned as an employee, this is an opportunity to acquaint him with the duties and rights of taxpayers.
Whether you or your accountant is completing your teen’s tax return, it is important that he or she review it with you. “I think it’s good for a young person to read this document,” says Chantal Amyot, a tax expert and lecturer at the University of Sherbrooke’s School of Management. “And this gives adults the opportunity to explain to him what the taxes that we pay to the two governments go to. »
It is also worth carefully examining, and with it, another tax document: its first valuation notice.
In most cases, young workers do not have to pay any taxes if they receive a modest annual income, that is, less than basic federal and provincial loans.
Major exceptions
In 2021, approximately 147,020 taxpayers under the age of 18 filed a tax return. In the 12 to 16 age bracket, 84,635 taxpayers earned less than $25,000, averaging $5,967.
Thus, this average income, well below the base exemption of $13,808 at the federal level and $15,728 at the provincial level, was not taxed.
On the other hand, in the same category of 12-16-year-olds, 684 young people declared zero or negative income in 2021, while 674 others, on the contrary, have an income of more than $50,000. “Probably these are young people who are shareholders of the family business,” says Chantal Amyot. “It’s definitely a revenue sharing. »
There may also be a few young influencers or online game creators. In all cases, “young people who earn income online in the form of goods or money must file a corporate income tax return,” the tax specialist emphasizes. “There is still a lack of knowledge about these commitments.”
Employment insurance and parental insurance
In 2022, underlying federal and provincial loans were $14,398 and $16,143, respectively. In 2023, they will rise to $15,000 and $17,183.
Most employers, knowing that the income of their young workers will inevitably be below the bar for basic loans, do not make tax deductions from their wages.
However, they must collect two contributions that no worker can avoid: one to the federal employment insurance fund, the other to the Quebec Parental Insurance Plan (QPIP).
Even if he receives a tax-free salary, any young taxpayer must file a tax return, Chantal Amyot insists. This is a particularly good way to identify erroneous inferences from a source. “The employer could, for example, withhold QPP contributions,” she explains. However, participation in the Quebec Pension Plan (QPP) is reserved for taxpayers aged 18 and over. It is also an opportunity to check whether employment insurance premiums and QPIP are in line with the current rate.
Let’s take a very plausible example today. Your 16-year-old daughter worked the entire year of 2022 in a supermarket: eight weeks full-time during the summer and ten hours a week during the school year. As soon as he was hired, he was offered $15 an hour, slightly more than the minimum wage. Result: She received a gross salary of around $10,000.
It’s not bad, but still too little to pay tax. Your teen will still be required to pay 1.20% of their earnings to the employment insurance fund ($120), while QPIP will require 0.494% ($49.40). In the end, she will keep $9,830.60 for herself.
Other loans would be available to your daughter…if her income was taxed! These are the Federal Employment Credit, the Federal Employment Insurance Premium Credit, and QPIP, as well as provincial deductions for workers.
TFSA and RRSP
What will your teenager do with his small fortune? She cannot invest in a tax free savings account (TFSA) until she is 18, but she can already contribute to a Registered Retirement Savings Plan (RRSP).
This is not the best financial strategy if the reported income is modest. Chantal Amyot believes that it is better to accumulate contribution rights (18% of income declared to the Revenue Canada), which can be carried forward indefinitely.
This way, your teen will be able to raise his contribution ceiling until he finally enters the full-time job market, perhaps even when his student-employee income crosses a critical threshold.
“There is no universal rule,” says Ms. Amyot. “It could be as low as $20,000 a year if the salary stays at that level. From the moment you have to pay taxes, it’s profitable. »
Conversely, “someone who earns $30,000 after college and expects to earn $60,000 in a few years should set aside their contribution room for a longer period.”
Solidarity Credit and GST Credit
Income tax filing is also required to qualify for the Provincial Solidarity Credit and the Federal Goods and Services Tax (GST) credit: both are based on declared income. Note that these two credits are respectively reserved for taxpayers over 18 and over 19.
Finally, the paid work of children can affect single-parent families, who are entitled to an “acceptable dependent amount”, i.e. $14,398 last year. In fact, if that person is one of your children and the latter has a job, their annual income will reduce that federal tax credit by the same amount.
Please note that this does not affect the payment of family benefits paid by Quebec. However, if you have an eligible second child, you may be able to claim a lower income minor as a dependent.
Any income from work your teen reports, whether as a minor or an adult, also contributes to the deduction for children in tertiary education as it is included in the calculation of this non-refundable parental tax credit.
Depending on your marital status, you may or may not receive other tax benefits or benefits related to your children’s income. Read all the instructions that come with your tax returns carefully. Or leave it all to your accountant.
Also Read: Do You Really Understand Your Payslip? and our guide to personal finance for 2023.