Taxes for Self Employed Individuals
Self Employment Taxes
Now that the personal tax deadline has come and gone, we’re looking to all those self-employed individuals who are working on their deadline of June 15.
The catch? If you owe, it was already due by Apr 30th to avoid interest.
So that means, were you making instalments all year? What, what? I have to make instalments?
If you are self-employed, you might now be wondering how much income tax you should put aside from your self-employment income so you don’t get hit with a hefty amount owing to the government. Better yet, you could be making instalments year-round to make sure you won’t have to dip into your savings accounts.
We can help you out by explaining a few things regarding self employment taxes vs. regular employment, and how to figure out what you will have to keep aside for tax time.
The differences between working for an employer and being self employed:
When you work for an employer, the employer pays half of your CPP contributions (5.25%) vs the 10.5% you’re required to pay are self-employed. When you work for an employer, you will pay into EI, but when you are self-employed it is not mandatory.
If you do pay into it then you will be eligible for all of the unemployment insurance coverages, such as maternity leave, sick leave, etc. The amount of income tax you will have to pay with an employer is based on your earnings, which is the same for self-employed individuals, however self-employed individuals can apply business expenses against that income and then only pay income tax on the amount less expenses.
To figure out how much income tax you will be liable for, you can use this free calculator: https://www.wealthsimple.com/en-ca/tool/tax-calculator/
The 2021 CPP rate & maximum is 10.5% & maximum amount is $6332.90. (to figure out your amount you take your Earnings minus $3500 basic exemption, then minus your expenses and then multiply that amount by 10.5%. If the amount is less than $6332.90 then you owe that amount, if it’s more than $6332.90, then you only owe $6332.90.
The 2021 EI rate & maximum is 1.58% to a maximum of $889.54. (to figure out your amount if you wish to pay into employment insurance, you would take your earnings, minus your expenses and then times that by 1.58%, for example, every $100 you earn after expenses, you would owe $1.58) If you want to see different scenarios, you can play around with this free online calculator: http://www.calculconversion.com/employment-insurance-canada-calculator.html
Check the yearly limits for EI here: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/employment-insurance-ei/ei-premium-rates-maximums.html
Check the yearly limits for CPP here:
Most importantly, have an expert in your corner, and that’s where we come in! Contact us with any questions. We’re here to help!.