Explained: Post-Tax Deductions in Quebec

Home to some 8.5 million people and over 250,000 businesses, Quebec is one of Canada's busiest provinces. The majority of the local population speaks French, although English and other languages are also widely spoken. Payroll processes in Quebec can differ significantly from the rest of Canada, as this province has special regulations and payroll tax deductions. 

In this article, we'll discuss these unique rules and how they affect employee post-tax deductions in Quebec.

What Is a Post-Tax Deduction?

So, what are after-tax deductions, exactly? Simply defined, a post-tax payroll deduction is an amount taken from a worker’s paycheck after taxes have already been calculated. 

Post-tax deductions are often used to cover benefits or optional expenses, such as health insurance, retirement contributions, and gym memberships. These deductions are voluntary and do not change the amount of standard taxes that are withheld from the paycheck.

Post-Tax Deductions vs. Pre-Tax Deductions: What's the Difference?

It’s important to note that post-tax payroll deductions are different from pre-tax deductions. Pre-tax deductions are taken from an employee's paycheck before taxes have been calculated and can lower the employee’s gross pay for the year. 

Examples of pre-tax payroll deductions include income taxes and government pension plans. These are similar to the US Federal Insurance Contributions Act taxes (FICA taxes) and are usually statutory deductions.

Meanwhile, an after-tax deduction is taken from the employee's net pay and is not a tax liability. These are usually voluntary deductions that employees choose to opt into. They may be mandatory in a few cases, such as those mandated by the court, for example, alimony or debt collections. 

Why Post-Tax Deductions Exist

It would be reasonable to say that most people want fewer taxes, not more. Compulsory contributions already take a big slice out of the average worker's paycheck, and whatever's left over usually goes directly toward bills. So, why would employees ever request post-tax payroll deductions?

It’s because many workers appreciate having access to certain benefits and services provided by their employer, even if they require additional payments. Post-tax deductions make those payments affordable and manageable, considering they aren't taken in a lump sum.

What Standard Deductions Are Taken from Paychecks in Quebec?

Every region has its own rules with respect to payroll taxes. The Canadian province of Quebec gives jurisdiction to two entities on the provincial and federal levels of government — the Canada Revenue Agency (CRA) and Revenu Quebec. As a semi-sovereign state with a special status in Canada, the province of Quebec has the authority to modify certain aspects of payroll deductions.

Below is an overview of the main compulsory deductions taken from a worker's paycheck in the province of Quebec.

Income Taxes

Income tax is a standard deduction found on paychecks in Quebec and across the world. It exists to help fund local, provincial, and federal governments. In Canada, the Canada Revenue Agency (CRA) is responsible for collecting federal income taxes from individuals and businesses, while provinces oversee the collection of provincial taxes.

Income tax deductions can amount to thousands or even tens of thousands of dollars per year, depending on how much money an individual earns.

Quebec uses a tiered system for income tax, with the thresholds for higher rates currently standing at 15% for the first CA $46,295 of a worker's taxable income, plus 20% on amounts between CA $46,295.01 and CA $92,580, 24% between CA $92,580.01 and CA $112,655, and 25.75% on amounts over CA $112,655.

At an entry rate of 15%, Quebec professionals pay the highest income tax rates out of all other Canadian jurisdictions. For example, British Columbia takes 5.06% from the first CA $43,070 of taxable income, while Ontario deducts only 5.05% from the first CA $46,226.

While some might consider that a lot, the government emphasizes the funds it collects are put to good use through essential provincial programs such as subsidized daycare, lower tuition costs, and social security.

It's worth noting that Quebec's income tax deduction rates are in addition to the federal income tax, which also ranges — between 15 and 33 percent — based on a worker's earnings.

Quebec Pension Plan

The Quebec Pension Plan  (QPP) is Quebec's version of the Canada Pension Plan, or CPP. The Quebec government runs this program and requires contributors to make mandatory payments in order to receive retirement benefits upon reaching a certain age.

Employers are required to contribute to the QPP if and when their employee's annual earnings exceed CA $3,500. That's the case for any full-time employee, although casual workers may not be required to pay into the plan.

The contribution rate for QPP stands at 12.80% of an employee's gross salary, which is evenly split between the employer and the employee.

Québec Parental Insurance Plan (QPIP)

The Québec Parental Insurance Plan (QPIP) is a mandatory fund that all wage-earning and self-employed professionals and employers must contribute to in the province of Quebec. The funds that go into it support payment benefits associated with maternity, paternity, parental, and adoption leave.

The premium rate employees pay through QPIP currently sits at 0.494%. Employer premiums have held steady at 0.692% for the past several years.

Employment Insurance (EI)

Employment Insurance (EI) is a federal program that provides various benefits for workers who have lost their jobs and need financial support. Contribution rates fluctuate from year to year, and so does the maximum annual insurable amount an employee can rely on. Quebec is privy to slightly lower EI premiums compared to the rest of Canada.

Common Types of Post-Tax Deductions for Quebec Employees

Even after all of the above mentioned taxes, some employers and employees still find post-tax deductions worthwhile. Being optional in most cases, there aren't any hard and fast rules for the deductions one can make in Quebec. Employers have the discretion to factor in deductions such as union dues, RRSP contributions, and certain insurance premiums, all of which we'll cover in this section.

Union Dues

Quebec is North America's most unionized economy, with a regional rate of roughly 40%. The benefits of union membership are multifold for employees, from job security to increased wages, better benefits, and working conditions. Employers in Quebec also benefit; unions can mediate between employers and employees during negotiations, helping both parties find solutions that benefit everyone involved. This ultimately leads to fewer disputes among workers – saving employers time, money, and hassle.

Unions come with their own operating costs, however. Bargaining agents require administrative resources, legal expertise, and research capabilities in order to do their job properly. To cover these expenses and ensure their members are financially supported in times of struggle, unions charge dues.

Union dues are mandatory fees paid by union members to help cover the costs of collective bargaining, representation, and other union activities. The amount a member must pay is usually based on their salary or hourly wage – with higher-income earners paying more than lower-income earners. Union dues can also be set as a flat fee, regardless of the employee’s salary or wages.

The Employers Council estimates that union dues in Quebec total over $1 billion a year. Employers in relevant industries may collect dues through payroll on a monthly or annual basis.

Group Registered Retirement Savings Plans (RRSPs)

Group Registered Retirement Savings Plans (RRSPs) are a type of retirement savings plan that enables organizations to contribute to a collective plan on behalf of all employees, who can contribute additional amounts.

Group RRSPs offer many advantages, such as minimizing administrative costs and saving on taxes. Employers may also be able to make tax-deductible contributions while providing employees with a valuable benefit for retirement savings.

Private Health Services Plans

Quebec is revered for a universal healthcare system that covers various essential care and specialized treatments for its citizens at no cost. There are limits, though; public funds don't cover fees from visits to an acupuncturist, audiologist, chiropractor, occupational therapist, physiotherapist, or psychologist, meaning individuals must pay those bills themselves. 

Some employers decide to offer their staff additional support for out-of-pocket healthcare costs through a private health services plan. Administered by an official insurer, these plans cover the costs of certain medical treatments and procedures (with some exceptions), providing employees with an extra layer of financial protection. 

Group Tax-Free Savings Accounts (TFSAs)

Tax-Free Savings Accounts, or TFSAs, are an incredibly valuable tool in the earner's arsenal of retirement savings plan options. They can be made directly through banks, although many Quebec employers opt to offer group TFSAs as part of their workers' benefits packages. Like an RRSP, employer-manged TFSA funds work by subtracting a predefined amount of a worker's earnings and investing it.

Group TFSA plans offer employees the ability to build a tax-free nest egg for financial goals like retirement without incurring any penalties or taxes on withdrawals. Employers can choose to match or exceed employee contributions, and the funds can be invested in a variety of different types of accounts.

Voluntary Retirement Savings Plan (VRSP)

Companies with ten or more employees and without group RRSP or TFSA programs are legally obligated to offer their staff a Voluntary Retirement Savings Plan, or VRSP. Just like its name implies, this program is meant to help employees prepare for retirement by setting aside a portion of their income into an investment plan.

In Quebec, VRSPs must be administered and monitored by an authorized third-party provider – like an insurance or bank company. Employers take on the responsibility of collecting contributions from their employees’ wages, which they have the option to match up to a certain amount.

Charitable Contributions

Often referred to as a 'gift at source' or 'payroll deduction donation,' charitable contributions through payroll are a convenient way for business organizations to empower staff to give back to their community. Gifts at source allow employees to deduct a portion of their salary or wages and donate it directly from the payroll system.

Employees wishing to take advantage of this tax-advantaged option must authorize the company’s payroll system. The employer will submit the deduction request to the appropriate organization, and employees can then track their donations through their paystub.

While donating to important causes is valuable in and of itself, employees also turn to payroll charitable contributions to lower their annual taxes. They can choose to contribute up to 75% of their income, with the amount deducted from the employee’s taxable income before calculating how much tax is owed. Donations are noted in T4 and Relevé 1 tax forms at the end of the year.

Wage Garnishments

In some cases, employers will be obligated to deduct additional earnings from an employee's paycheck to collect on debts and missed payments. Collections officers, government departments, and private organizations may reach out to request money from an employee's salary, whether it be for a backlog of government taxes or an unpaid loan.

This is a very case-by-case affair, with the amount deducted varying based on the type of debt that is being collected. Businesses usually try to spread payment installments out over a period of several weeks or months. 

Other wage garnishments could come directly from the employer if the employee has accumulated certain absences from work or failed to pay for any materials used in their job. It's up to HR managers or whoever handles payroll to decide how much of an employee's earnings should be deducted.

How to Calculate Post-Tax Deductions

To say payroll taxes are complicated would be an understatement. You've got about one million things to consider throughout the administration process, not just in regard to deductions but also wages, housing allowances, holiday pay, and so on. Post-tax deductions warrant further consideration of federal and provincial regulations, as employees and employers may have to play by special rules in certain circumstances or industries.

#1: Start By Calculating Net Pay

You might remember from earlier that post-tax deductions apply to net earnings, which are calculated after the deduction of taxes. To calculate net earnings for an employee who is subject to post-tax deductions, you must first subtract both Federal and Provincial Income Tax (FIT/PIT) from their gross wage, as well as the Quebec Pension Plan (QPP), Québec Parental Insurance Plan (QPIP), and Employment Insurance premiums. The resulting number represents what they take home after the government has received its share.

#2: Subtract Post-Tax Deductions

With net pay determined, you’ll be able to bring post-tax deductions into the equation. The actual amounts of these deductions will depend on a business' payroll policies and any applicable laws in the province or industry. 

As we covered earlier, common post-tax deductions include union dues, professional fees, memberships, benefit premiums (e.g., extended health care), miscellaneous employee deductions (e.g., parking), and garnishments. Most are applied as a predefined percentage of an employee’s net wages, although some benefits and dues may be paid in a fixed amount. They should be segmented line-by-line so that employees know exactly what deductions are being taken from their paychecks and why.

#3: Calculate Final Take-Home Pay

At this point, you’ve accounted for all payroll taxes and any applicable post-tax deductions — what’s left is an employee’s final take-home pay. This is the amount that gets transferred into their bank accounts (in the form of either direct deposit or a physical cheque) each pay period.

Afterthoughts on Post-Tax Deductions

Post-tax deductions are just one step in the very extensive employee payroll process. It certainly takes some time and research to figure out, but those are well-invested resources considering how important accurate payouts are.

In a world of remote work with the potential for unfettered international growth, Borderless equips businesses like yours to get top talent paid in a timely manner. Tap into our suite of global payout solutions. Speak with a Borderless team member today.

‍