So, for example, if someone made $40,000 this year from all their sources of taxable income (including paid work, benefits, bank interest, etc.) they are in the lowest federal bracket for 2020 and will pay 15% in federal tax, or about $6,000. The most important thing to understand about Canada’s federal income tax brackets (and most provincial brackets, other than Quebec) is that the rates apply only to the earnings that fall within each tier-sort of like a ladder. What are the federal tax brackets in Canada for 2020? Since you pay taxes to the federal government, as well as to the provincial government where you reside, there are tax brackets and tax rates for both levels of government (which we’ve outlined in full below). There are five categories of federal tax rates, with each one classified as an “income bracket” based on how much money you earn in a year (even if you are self-employed). So, instead of everyone paying a flat percentage of their income in taxes, those with low incomes pay a smaller percentage, with rates progressively increasing for higher income earners. In Canada we have what’s called a progressive tax system, which means “the more money you make, the more you are expected to contribute to taxes,” says Zakharia. Simply put, tax brackets outline how much tax each of us should pay, based on our annual income. “Your tax bracket lets you know the percentage of taxes you could pay on the next dollar you earn,” says Andrew Zakharia, an accountant and founder of AZ Accounting Firm in Toronto. Why? Understanding where you fit will help you estimate how much tax you owe on your 2020 income, while you still have a few months to save up before outstanding payments are due in the spring. As we head toward the end of a year in which many Canadians’ incomes were erratic, it’s important for taxpayers to find out which provincial and federal tax brackets they fall into.
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