By Carla Hindman, director of financial education, Visa Canada
High school, college and university students hoping to find temporary jobs may be in for a tough time this summer – once again – as they compete with older, more experienced workers in a still-struggling economy. But if your son or daughter is fortunate enough to find work, there are a few things he or she – and you – should know about the economic and tax ramifications of temporary employment:
•Payroll deductions: If this is their first job, warn your kids about common payroll deductions that can take a big bite out of take-home pay. Common culprits may include federal and provincial income taxes, the Canada Pension Plan (CPP) and Employment Insurance (EI). Depending on the type of job, they may also be deducted for health plans, uniforms and union dues.
•Self-employed status: Many teens start their working careers by being self-employed, doing part-time jobs like babysitting, yard work or housekeeping. It's important to know that this income is also subject to income tax.
According to 2012 Canada Revenue Agency guidelines, all self-employment income should be filed as part of the student's income tax return. If their self-employment net earnings exceeds $500 from one payer, that payer is required to issue a T4A slip, to be included in the income tax filing.
The Canadian Revenue Agency provides a handy guide called Students and Income Tax that explains what types of income are and are not taxable (www.cra-arc.gc.ca). For example, tips, bank account interest and certain scholarship-paid expenses such as room and board must be reported as taxable income.
•RRSP contributions: Retirement is probably the last thing on your teenager's mind, but you should know that they are allowed to open and contribute to an RRSP each year. If you or the grandparents want to make a down payment on your kid's future, consider funding a Registered Education Savings Plan (RESP) to save for post-secondary education.
Carla Hindman directs Visa's financial education programs in Canada. Follow Hindman on Twitter: www.twitter.com/MoneySkillsCA