Work income kept on retirement in 2023

The calculator of work income kept at retirement estimates the share of work income that remains in a pensioner’s portfolio once taxation has been considered when the pensioner resumes employment.

The calculator facilitates enlightened financial decision‑making since it clearly indicates disposable income before and after the resumption of employment. The overview considers the Québec and federal tax systems but also the employment incentive measures to which workers may be entitled, depending on their situation.

Government withholdings and clawback

The calculator can be used to estimate the government withholdings that will apply to the work income of a pensioner and the required contributions that will be deducted from such income.

The calculator also considers the impact of work income on socio‑fiscal transfers, which might decrease because of the increase in the taxpayer’s total income.

Employment incentives

The Québec and Canadian taxation systems contain measures that seek to protect from taxation certain work income, whether to recognize employment‑related expenses or to encourage taxpayers to return to the labour market or to remain there.

Some measures, such as the deduction for workers, apply to all workers, while others, such as the tax credit for career extension, are specific to experienced workers.

The calculator indicates the impact of such measures on the tax payable of retired taxpayers who are employed.

Illustrations

The calculator estimates the retention rate of work income, i.e. the proportion of his work income that a taxpayer will keep once taxes and contributions are paid and the change in socio‑fiscal transfers is considered.

Let us take the example of a 61‑year‑old pensioner with an annual pension of $30 000 who wants to estimate the net gain that $15 000 in annual work income would provide.

With this additional work income, the worker would pay $4 995 in additional taxes and contributions and lose $416 in reduced socio‑fiscal transfers, for a reduction in income of $5 411.

However, this worker benefits from a $1 400 tax cut through the tax credit for career extension and an additional reduction of $321 through the deduction for workers and the Canada employment amount. Accordingly, the employment incentives reduce by $1 721 the tax payable.

Consequently, the pensioner’s net gain from work income will be $11 310, which corresponds to a work income retention rate of 75.4%.

Updated March 21, 2023