Net income seems WAY off (in Ontario, Canada)

March 17, 2015 11:33 PM

I've just finished doing my Canadian taxes using Turbotax. The net income calculated by inputting my T4 is higher than what I actually netted (calculated using excel + mint) by about $8000.

I do file with my spouse, but this is my personal net as seen on line 236 on my personal return.

I calculated my actual net by adding up every paycheque I received in 2014 (including my bonus). It's about $30 000. The number on line 236 is $38 000.

Is this something I should be concerned about? Or do I have a fundamental misunderstanding of how tax returns and net income works (this would not come as a surprise to me).

posted by anonymous to Work & Money (11 answers total)

Net income on your paycheque is likely net of taxes withheld by the employer (personal taxes, EI, CPP, etc) and directly transmitted to CRA. Your tax return is showing the total income earned and then reconciling tax withheld with actual taxes payable to determine if you owe more or need to be issued a refund for excess tax withheld.
posted by Danniman at 5:01 AM on March 18, 2015

In other words, $38,000 is likely your gross income, not your net.
posted by postel's law at 5:11 AM on March 18, 2015

The net income on your tax return is gross income less allowable deductions such as RRSP contributions, moving expenses, child care expenses, etc. This is the amount used to calculate the amount of tax payable. Non refundable tax credits are then subtracted from tax payable.

The net income paid is as Danniman said, gross income less taxes and other deductions at source.

In an ideal world the tax deducted at source is pretty close to the amount you need to pay. If you underpaid though the year, you need to submit more. If more tax was paid than necessary, then you get a refund of the excess.
posted by TORunner at 5:19 AM on March 18, 2015

It is not clear whether the $30000 is your pre or post-tax income -- if post-tax, see previous comments. If it is pre-tax, you could have taxable benefits which are increasing your income. Supplementary health insurance is usually good for a few thousand, though $8000 seems high unless you have a gold-plated family benefits package.
posted by cardboard at 5:53 AM on March 18, 2015

Do you get a statement with your paycheques showing your gross income for that pay period and the deductions? It might help to look at that -- mine has information for the pay period and a year-to-date, which is helpful.
posted by girlpublisher at 5:56 AM on March 18, 2015

(Answerers who have not used TurboTax: I don't think it is OP's gross income, because to my recollection, in TurboTax, you enter income, including in your T4 gross income, at lines 100+, and eligible deductions listed on the T4 and elsewhere in lines 200+ and then Line 236, which is net income -- is calculated by TurboTax based on those inputs. Line 236 on a tax return is your net income, not gross income, and OP can't have entered the wrong number there because it is a calculation. The error, if any, is in putting in the entries in the 100+ lines or in the 200+lines prior to line 236 -- that is, what income and eligible deductions from income OP has, or it is OP's assessment of how much he was paid.)
posted by girlpublisher at 6:06 AM on March 18, 2015

Isn't the net income on your paystubs the amount you received, after all deductions (meaning moneys diverted to another place, not tax deductions) are made? The net income on TurboTax should be your gross income - taxes. On your pay stub there can be moneys diverted for other reasons such as your contributions to a health plan, union or professional dues, United Way donations, etc. etc. Even when these are deductions or tax credits, they don't necessarily reduce your net income (deductions) or increase your tax paid (tax credits) 1:1/dollar for dollar.
posted by If only I had a penguin... at 6:51 AM on March 18, 2015

This is purely a terminology-related issue. Net income for the purposes of line 236 is different from the meaning of net income when people talk about their pay cheques.

To fully understand the meaning of line 236, you'd have to read through the T1 form and see all the deductions that are subtracted from total income to arrive at net income (boring). The bottom line in this case is that the CPP, EI, and income tax withholding taxes on your pay stub don't appear anywhere on this part of the tax return.

This means that line 236 doesn't equal the sum of your pay cheques in most people's case.
posted by bkpiano at 7:31 AM on March 18, 2015 [2 favorites]

Another way to look at it, is that Turbotax is talking about your net taxable income, and your paystubs are showing you your income after taxes are withheld - what we used to call "take home pay".
posted by mr vino at 8:25 AM on March 18, 2015

Not just taxes but also CPP, EI, sometimes RRSP contributions and union dues possibly. This is the source of the confusion. Your take-home total is not the same as the line 236 taxable income.
posted by bonehead at 10:34 AM on March 18, 2015

This is an image of the T4. You enter the employment income at the beginning (box 14) to get your net. You'll enter a bunch of the other boxed as deductions, then you'll enter the tax withheld (box 22) at the end to see if you get a refund (seems likely in your case).
posted by bonehead at 10:36 AM on March 18, 2015