Personal Finance

I have option to pay CPP and EI

  • Last Updated:
  • Jun 23rd, 2011 2:08 pm
[OP]
Jr. Member
Jan 28, 2009
105 posts
5 upvotes
Halifax

I have option to pay CPP and EI

Just found out that I have the option to pay (or not pay) into EI and CPP.
Here is the breakdown;
EI (me): 1.78%
EI (employer): 2.492%
CPP (me):4.95%
CPP (employer): 4.95%

I make 52K/year. I am on a 3 year contract with very high probability of not continuing after that or leaving for better position before the end of the 3 years. So I am thinking EI is not worth the $890 a year.

As for CPP, $2574/year seems kind of steep. I am not really sure how CPP works. Does the amount I pay in actually get linked to my name or is my retirement just based on the number of years where I paid CPP?
16 replies
Deal Addict
Aug 12, 2004
3473 posts
719 upvotes
Calgary
EI and CPP are mandatory. If you don't pay it now, you will pay it when you have to do your tax return. And yes CPP is attached to your name, to give you a steady income once 65. It's chump change though, and max CPP is not nearly enough to survive on which is why having an RRSP is so important.
[OP]
Jr. Member
Jan 28, 2009
105 posts
5 upvotes
Halifax
No it really is optional for me. I can choose to have it withdrawn, but I am not seeing much upside to going that route.
Deal Addict
Aug 12, 2004
3473 posts
719 upvotes
Calgary
HoweFox wrote:
Jun 23rd, 2011 12:34 pm
No it really is optional for me. I can choose to have it withdrawn, but I am not seeing much upside to going that route.

You don't get it, you don't choose whether or not to pay into CPP and EI (even if you were incorporated). It's mandatory, you have the option to pay now or pay later in a lump sum when your taxes are due. That's all there is to it.
Member
User avatar
Oct 13, 2004
269 posts
9 upvotes
You may not need EI over the 3 years, so maybe skip that one. However when you are 65, CPP will look at how many years you've contributed to CPP. You would lose 3 years of contribution but 7-8 grand is a lot of money. If your three years show zero contribution, your CPP pension will be less but I don't know how much less. Maybe just 35 bucks a month less.

You should call CPP and ask them how much you stand to lose and see if it's worth losing 8,000 over the 3 years.
[OP]
Jr. Member
Jan 28, 2009
105 posts
5 upvotes
Halifax
Firebot wrote:
Jun 23rd, 2011 12:44 pm
You don't get it, you don't choose whether or not to pay into CPP and EI (even if you were incorporated). It's mandatory, you have the option to pay now or pay later in a lump sum when your taxes are due. That's all there is to it.

Well I understand that what you are describing it the usual case, but it is not my situation. I'm not sure why you are so adamant that you are right in my particular case. I know for sure that it is optional. I will not get into all the specifics why it is optional. My question was assuming that I don't have to pay it is there any reason why I should opt in?
[OP]
Jr. Member
Jan 28, 2009
105 posts
5 upvotes
Halifax
Sandie5 wrote:
Jun 23rd, 2011 12:49 pm
You may not need EI over the 3 years, so maybe skip that one. However when you are 65, CPP will look at how many years you've contributed to CPP. You would lose 3 years of contribution but 7-8 grand is a lot of money. If your three years show zero contribution, your CPP pension will be less but I don't know how much less. Maybe just 35 bucks a month less.

You should call CPP and ask them how much you stand to lose and see if it's worth losing 8,000 over the 3 years.

I am guessing that if I am disciplined enough to save that money into my own RRSP that it would be more of a pay off by the time I hit retirement.
Jr. Member
Jun 2, 2007
173 posts
3 upvotes
0
Do you have registered Indian status? Or under 18 or over the age of 70? As far as I know this would be the only way to be exempt from CPP. Any other situation you will be paying the CPP owing when you file your T1. If you are basing your "optional" status based on what your employer is telling you, your employer may be wrong.

Why do you have this option to pay or not pay EI and CPP? Is it because in one situation you would be paid as a subcontractor and in the other as an employee?
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Jun 28, 2005
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rfd_incognito wrote:
Jun 23rd, 2011 12:58 pm
Is it because in one situation you would be paid as a subcontractor and in the other as an employee?
That's absolutely what he is saying without saying it. If he invoices for his work, he is not an employee. CRA may disagree though.
[OP]
Jr. Member
Jan 28, 2009
105 posts
5 upvotes
Halifax
agent86 wrote:
Jun 23rd, 2011 1:04 pm
That's absolutely what he is saying without saying it. If he invoices for his work, he is not an employee. CRA may disagree though.

No this is not the situation. Since people are so interested I guess I can explain. I am a post-doc at a university and post-docs have been going through different classifications at universities over the last few years. The conservative government changed the rule that income tax did not need to be paid on scholarships. This was to help out students. Some universities started classifying post-docs as students claiming that they were still in a "training" position and these post-docs were getting their income without any income taxes (sweet deal, but I was still a PhD student back then). Then the CRA ruled that this was not allowed and then post-docs were then classified as regular employees. Before hand they would not get any benefits or EI or CPP deductions since they were a "student". Now post-docs are getting switched over and it appears to be some grand fathering thing were we can now choose to pay CPP and EI (receive a T4) or continue not paying (receive a T4A).
Deal Addict
Mar 18, 2009
1088 posts
144 upvotes
Renous
If I were you, I would pay it.

At the end of the year when you do your taxes if you're exempt from CPP and EI payments (for whatever reason), then just recover them then. ;) Nice return! Otherwise you may be in for a surprise if the rules are changed and nobody tells you.

When it's all said and done, you won't notice the dribbles off your check, but if they hit you up for $3000 come April 1st, then you'll notice.
Reserved for future time travellers
Deal Addict
Aug 12, 2004
3473 posts
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Calgary
HoweFox wrote:
Jun 23rd, 2011 1:11 pm
No this is not the situation. Since people are so interested I guess I can explain. I am a post-doc at a university and post-docs have been going through different classifications at universities over the last few years. The conservative government changed the rule that income tax did not need to be paid on scholarships. This was to help out students. Some universities started classifying post-docs as students claiming that they were still in a "training" position and these post-docs were getting their income without any income taxes (sweet deal, but I was still a PhD student back then). Then the CRA ruled that this was not allowed and then post-docs were then classified as regular employees. Before hand they would not get any benefits or EI or CPP deductions since they were a "student". Now post-docs are getting switched over and it appears to be some grand fathering thing were we can now choose to pay CPP and EI (receive a T4) or continue not paying (receive a T4A).
That does clear up as that's an extremely rare exception. In any case, CPP is a poor investment return wise, just one that all Canadians much pay into as most people are unable or unwilling to save properly for their retirement which garantees an income. It affects how much you get a month once you retire (in general currently you need to have paid your full CPP contribution for about 40 years to get the max of 900$). The longer you pay the max, the close to the maximum you will get. If you end up with bigger salaries and save up yourself the difference is miniscule, so it's up to you if the 3K is worth more to you now or later. The last thing you want is a nasty 3000$ surprise in April unexpectedly due to rule changes or misintepretations so make sure all is accounted for.
Jr. Member
Jun 2, 2007
173 posts
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Thank you for filling in the blanks.

Just a word of caution, CRA may change the reporting requirements at any time forcing your employer to issue a T4 instead of a T4A. CRA is trying to move away from having income reported on T4A slips.
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Jun 28, 2005
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HoweFox wrote:
Jun 23rd, 2011 1:11 pm
No this is not the situation. Since people are so interested I guess I can explain. I am a post-doc at a university and post-docs have been going through different classifications at universities over the last few years. The conservative government changed the rule that income tax did not need to be paid on scholarships. This was to help out students. Some universities started classifying post-docs as students claiming that they were still in a "training" position and these post-docs were getting their income without any income taxes (sweet deal, but I was still a PhD student back then). Then the CRA ruled that this was not allowed and then post-docs were then classified as regular employees. Before hand they would not get any benefits or EI or CPP deductions since they were a "student". Now post-docs are getting switched over and it appears to be some grand fathering thing were we can now choose to pay CPP and EI (receive a T4) or continue not paying (receive a T4A).
Opt to get T-4'ed and pay the CPP & EI. If you get T4A, it does not qualify you to have RRSP room added (18% of $52k). A municipal agency chose to give me T4A last year. I got none of the employment income benefit and got taxed at my marginal tax rate.

Besides, you are CPP'ed on only $44,800 ($48,300 less $3,500 exemption) and EI'ed on $44,200. Your outlay on CPP and EI is about $3,000 ($2,217.60 of CPP and $786.76 EI).
[OP]
Jr. Member
Jan 28, 2009
105 posts
5 upvotes
Halifax
Ok, I will not opt-in, but set aside the money in case CRA decides my employer is wrong.
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