Although you may be familiar with payroll taxes and deductions in British Columbia and Canada before tax, like CPP and EI, did you know there are other types of post-tax deductions you may not even have thought of?
For employers across Canada, it’s important to get familiar with less-common financial factors like post-tax deductions and how they can impact how you process your employees’ payroll.
Today, we’ll go in-depth on British Columbia post-tax deductions— everything you need to know to process payroll quickly and compliantly and how to guide your employees in the right direction when it comes to paying both federal and BC provincial taxes.
What is Deducted from Your Pay in Canada?
Before understanding how post-tax deductions in British Columbia work, it is important to understand the taxes and charges withdrawn from your gross pay in Canada. Let’s get to know pre-tax deductions that are withheld by employers from their staff's paychecks. These include pre-tax contributions, such as tax liability per employees' income tax brackets. The rest is considered net pay after tax deduction.
Most pre-tax deductions in Canada are levied on employees off of their payroll to support social programs and services in the country. These payroll tax deductions work similarly to FICA taxes in the US, which go toward supporting things like Social Security benefits. All Canadian workers aged 18-70 must pay into the Canada Pension Plan. This plan provides basic benefits if you, as an employee retire, become disabled, or, in the case of death, can provide benefits to your dependants. Employers calculate how much is deducted from a paycheck to be paid into CPP. Both employee deductions and employer matching pay monthly costs for CPP. The 2023 rate for CPP deductions is 5.95% contribution by an employer and 5.95% deducted from an employee’s paycheck.
Employment Insurance (EI)
Employment insurance gives workers temporary financial relief during periods of unemployment. Generally, to be eligible for employment insurance, a potential worker must show proof that they are actively looking for work or upgrading their skill set to better equip them for the job market through training or upskilling programs. Each year, an EI maximum and premium rate are determined, giving employers a guideline for how much EI to deduct from their workers’ paychecks.
Income Tax Deductions
Under British Columbia’s tax regulations, taxpayers must also pay regular personal income tax. The requirements in British Columbia are composed of both a provincial tax requirement and a federal requirement. The province follows a progressive, bracketed income tax system, meaning that different tax rates are applied to different income amounts, and increasing rates are used to tax income the higher you earn. In the 2023 tax year, provincial taxes in BC ranged between 5.06% (income from $0 to $45,654) and 20.05% (any income over $240,716).
Under this deduction, tax residents in BC (and anywhere in Canada) qualify for a basic personal income tax amount. The basic personal amount (BPA) is non-refundable and aims to reduce federal income tax for anyone with taxable income below the amount set out in the BPA. Different provinces determine different amounts, and if you are a tax resident in Canada, you are eligible to claim both the provincial and the federal BPA. The current BPA in British Columbia is $13,521 as of 2023.
Québec Pension Plan (QPP)
Québec operates differently from the rest of Canada in its tax deductions from workers’ paychecks. In this province, the QPP (Québec Pension Plan) replaces the CPP (Canadian Pension Plan), operating within the province. Under Québec’s plan, employers must contribute to parental insurance payments and remit income taxes to Revenu Québec. EI is also withheld at a lower rate than for workers in the rest of Canada.
Provincial variances like this highlight the importance of staying familiar with the rules in provinces or territories of employment, no matter where your employees work in Canada.
That being said, British Columbia follows quite a different set of rules from Québec! Now that you understand which deductibles are levied on Canadian employees’ recurring paychecks, let’s explore the post-tax deductions on top of these to net income in British Columbia.
Other British Columbia Tax Credits and Deductions
The province of British Columbia also has several other tax credits you can use to reduce your basic personal income tax. Here are a few of them:
BC Family Benefits (BCFB)
The BC Family Benefit or BFCB is a tax-exempt monthly payment to families with children under 18. The benefit is combined with the Canada Child Benefit (CCB) into a monthly payment that parents can receive if eligible. Additional money is added to this benefit per child.
BC Climate Action Tax Credit
The BC Climate Action Tax Credit (BCCATC) is a tax-free payment offered to low-income earners in British Columbia that is intended to offset the tax effects of carbon taxes that BC tax residents pay. In 2023, this initiative pays up to $447 for an individual, $223.50 for a spouse or partner, and $111.50 for each child in a family, with some exceptions.
What is a Post-Tax Deduction
Post-tax deductions are a type of payroll deduction where an employer makes a deduction off an employee’s paycheck after all the necessary taxes have been withheld. These are taken off of an employee’s net pay and don’t reduce an employee’s taxable income. What are some examples of post-tax deductions? These include life insurance AD&D (Accidental Death and Dismemberment) and wage garnishments.
AD&D
In the case of accidental death or dismemberment in the workplace an AD&D benefit can provide coverage. These are usually applied in only the most serious of circumstances for workers. In the case of a loss of life or loss of vision, hearing, use of a limb, or speech, and AD&D benefit can be applied on top of life insurance for an employee or family member in the case of a severe accident or injury.
This benefit is paid out as a lump sum, tax-free, and does not require you to show proof of good health or proper lifestyle, as some life insurance benefits would. As of 2022, the BC Medical Journal reported that demand for AD&D benefits was increasing, especially among those with dependents and even among those who did not have other life insurance or accident coverage from the province.
Additional Health Insurance
Employees may opt into supplementary health insurance through voluntary after-tax contributions. In this case, employers are responsible for withholding insurance premiums from their staff's after-tax income. Such insurance can cover things like vision, dental, medicine, physical therapy, and other services not typically covered by regular healthcare services.
Garnishments
These are payments that creditors can acquire through the court system if you leave certain financial amounts owing. These include debts, child support, taxes, or other similar fees unpaid. Garnishments are not voluntary deductions. Employers are legally obligated to withhold these after-tax deductions.
In the case of child support, for a garnishment to be paid, a Notice of Attachment is generally issued to indicate that a payer is behind on a regularly scheduled payment or in arrears. Notices of Attachment can be issued if you fall behind on regularly scheduled payments, do not reach a satisfactory payment agreement with the BCFMA (BC Family Maintenance Agency), or fail to respond to contact from the agency. Garnishments can be taken federally from sources like CPP or EI payments.
Post-Tax Deductions in British Columbia
So when do you actually apply post-tax deductions to your income calculations in British Columbia? These are generally the very last steps in the process of calculating your total income or filing taxes. After removing regular deductions like CPP, EI, and your basic personal amount from your paycheck, you are ready to calculate post-tax deductions to determine your British Columbia income tax amount.
Why an Employer of Record?
When it comes to pre-or post-tax deductions, Employers of Record can be the best way to keep you tax-compliant. EOR services are well-versed in:
Payroll Management
EORs help offload pesky payroll tasks to take one more action item off your desk. A good EOR service should be familiar with CPP, QPP, EI, and other income tax contributions and ensure they are properly calculated and remitted when it comes to your business.
Tax Filing
An EOR can help you file personal income taxes or business taxes for payroll. Acting as your full legal employer, EORs can submit Canadian tax slips like T4s or T4As to the Canada Revenue Agency (CRA) on behalf of an employer legally.
Cost Management
A good EOR service comes with a range of different packages and the option to pick the best one for your needs. From a few targeted HR tasks you don’t want to do to a full suite of services, an EOR service will have the plan to suit your budget.
One-Stop Shop
You don’t need to worry about looking for a full-time CFO or compliance expert, often at higher rates. EOR services have all of the required personnel on deck to be able to help you achieve full financial and legal compliance.
Full Legal Compliance
When you work with an Employer of Record (EOR) service, you get a guarantee of full legal compliance. This means we help reduce risky business practices that could lead to things like employer misclassification. We also ensure your taxes are paid on time with complete and accurate paperwork. Ensuring compliance reduces your company’s risk of incurring legal penalties or financial repercussions that hurt both your bottom line and your company’s reputation.
Employee Benefits
On top of this, an EOR can manage the benefits your company offers to employees like healthcare and retirement savings plans. We help make sure that all tax contributions have been taken into consideration when it comes to managing your company’s benefits strategy.
How Borderless AI Can Help
Getting smart about your tax and post-tax deductions is not only a good idea— it’s essential to maintain your financial and legal compliance. Lucky for you, at Borderless AI, compliance is the name of our game. As your Employer of Record, we have helped companies hire from 170+ countries (not just Canada!) while maintaining full legal compliance.
Borderless AI enables businesses to compliantly hire and manage talent worldwide without establishing a foreign entity. We alleviate the complexities and risks associated with hiring global employees with zero deposits, dedicated in-house support, and AI-powered global employment law resources.
To get the full scoop on how we can help you expand your team in Canada and beyond, speak with us today to learn more about our company values and how we can provide a tailor-made global HR package for your business.
Disclaimer
Borderless does not provide legal services or legal advice to customers, contractors, employees, partners, or the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
