I’m not sure about you, but one of my happiest days of the month is PAYDAY! As a recent grad and now, slave to the workforce, it’s great to be finally making some $$. However, at first you may think you are making a lot of money, until you actually read your pay cheque.

You will see something like this: You make $3000 → but you actually take home only $1500. WHAT?? Where did the other $1500 go??

In this article I will break down how to read your pay cheque and actually understand where the missing HALF of your pay cheque is going.

Section 1: Hours and Earnings:

The first section is hours and earnings. This section contains how much hours you worked and how much money you made. This is the section when you THINK you made a lot of money before your dreams are CRUSHED.

Throughout your pay cheque you will see YTD which stands for Year-to-date. In these sections, it will add all the amounts from the beginning of the year (2020) to the current date. Since this is the first pay cheque of 2020, YTD and current is the same.

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Section 2: Before-Tax Deductions:

This section includes any deductions that reduce your “Taxable Income”. Remember Taxable Income is the total amount of your income that is allowed to be tax. Therefore, by reducing your taxable income, you can reduce the amount of tax that you owe, which is GOOD!

With employment income there are only a few deductions that allowed to reduce your taxable income. The main deductions are from your RRSP (Registered Retirement Savings Plan) and your pension contribution.

For a recap, check out my previous article: “Who do you ACTUALLY work for?”

Section 3: After-Tax Deductions:

This section includes any deductions after you pay taxes. This can include employment health/insurance premiums and any contributions to your TFSA. These deductions do not reduce your Taxable Income.

Section 4: Taxes

This section is called taxes, but it also includes Canadian Pension Plan (CPP) and Employment Insurance (EI) deductions.

CIT: Canadian Income Tax:
CIT is the amount of taxes you owe the federal and provincial government. It is calculated based on your Taxable Income * your respective tax bracket. In this case, the tax bracket is 30%. 

CPP: Canadian Pension Plan:
The contribution rate is split equally between the employee and the employer. If the employee is between the ages of 18-69 and are employed, employers must automatically deduct CPP contributions. In 2020, the CPP rate is 5.25% to a maximum of $2,898.00. 

EI: (Employment Insurance):
EI is a requirement for both employer and employee to pay. In 2020, the EI rate is 1.58% of earnings to a maximum of $856.36. 

After all of these deductions, the amount of money you actually take home is significantly reduced. 

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Section 5: Calculation of Net Pay

Net Pay is the amount of money you actually take home at the end of the day that you can use for spending and savings.

Total Gross: Is the total amount income before taxes and other deductions.

CIT Taxable Gross: is the taxable income. Taxable Income = Total Earnings + Employer Benefits – Before Tax Deductions. This number is what is used to calculate the total CIT (Canadian Income Tax) you owe to the government.

Total Taxes: includes the total amount of taxes that you pay to the government, and your CPP + EI deductions.

Total Deductions: includes all the before-tax and after-tax deductions on your pay cheque.

Net Pay = Total Gross – Total Taxes – Total Deductions = NOT MUCH LEFT OVER


Overall, when determining and measuring your financial goals, it is extremely important to actually read your pay cheque and take all of the payroll deductions into consideration. Sometimes the deductions can be more than 50% of your annual income which can significantly influence your financial goals.

Remember that employment income is one of the worst types of income in-terms of being able to defer/avoid paying taxes. Read “How do people get Rich” to learn about different types of income that allow you to keep more of the money you earn.


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