# Periodic and Non-Periodic Earnings

There are two kinds of earnings, referred to as "Periodic Earnings" (or "regular earnings") and "Non-Periodic Earnings" (or "bonus" earnings). These are both taxed differently and knowing the difference is very important.

## **Periodic Earnings**

Periodic earnings are earnings paid to employees periodically, typically in the form of draws, salaries, or hourly wages.

It is important to remember that with regards to taxation, tax brackets aren't progressively ramped up based on year-to-date income. That is to say, you don't pay "no taxes" on your basic exemption (federally, that's $11,474 a year), and then 15% on the next bracket, and so on, so forth. If this was how you were taxed, the government would actually not collect any money from you until you made more than $11,474 then, as the year went on, they would collect more and more, which would make planning quite a bit more difficult.

Instead, the government requires payroll providers to estimate an employee's annual salary based on your pay period salary. For example, say you make $45,000 a year and are paid semi-monthly. Your semi-monthly paycheque would be $1,875.

From that number, the CRA doesn't need to know what your annual salary actually is -- they can guess by multiplying that number by the number of pay periods, getting us back to $45,000. What's more, is that they now know which tax brackets you'll land in: the second bracket is after $42,707.00, so they know that *some *of your earnings will be in the second bracket.

So, they determine your yearly taxes in this manner. First, they tax your first $42,707.00 at the standard 15% (they ignore the basic exemption until later), arriving at the total of $6,406.05. They then tax the remainder (45000-42707=) $2,293.00 at 22% for a total of $504.46. These two combined figures are $6,910.51.

After determining that, the basic exemption is then taken into consideration. Since the first $10,822.00 of earnings are in the first bracket, that's where they're considered: 10,822.00 * 15% = 1,623.30. This number is then subtracted from the total taxes from above, landing us at $5,287.21. That number would be your total (federal) taxes paid out that year. This neat party trick can be adapted for provincial taxes by substituting the appropriate exemptions, brackets, and taxation percentages.

That's how the CRA and the government like their taxes calculated. Now, things could be slightly trickier if we were to tack a bonus on top.

## Non-Periodic Earnings

Non-Periodic Earnings (or "bonus" earnings) are things such as bonuses -- they're aren't paid out regularly and thus, if the government were to use the above taxation method, they would grossly overcalculate how much you would pay in taxes. For example, if you made $1,875 a paycheque but received a $4,000 bonus, the government would estimate your salary as ([1,875+4,000)*24=) $141,000, which is a far cry from $45,000. That would just knock you into the fourth tax bracket and make your annual taxes just shy of $30,000!

Instead, non-periodic earnings are calculated on top of your annual salary. So, if your annual salary is $45,000 and you receive that $4,000 bonus, using the non-periodic method, your annual salary will be calculated as being $49,000 -- which while it might not be totally accurate (if you make more or less in a pay period, if your receive further bonuses, etc) it definitely "guess" much closer. That's why a bonus set as non-periodic will calculate much differently than a bonus mistakenly calculated as being periodic.