This text is taken from the Courrier de l’économie of August 15, 2022. To subscribe, click here.
I know plenty of retirees who would like to work two or three days a week. But by working, they raise their tax rate, and therefore hand over all or more to the government. Me, I work for my physical and mental health, but my accountant tells me that I am lowering my income […] and give money back to the government.
The Research Chair in Taxation and Public Finance (CFFP) at the University of Sherbrooke released a study in the spring of 2021 in which it compares 28 different profiles of taxpayers receiving a salary in addition to retirement income. In 23 of the 28 cases analyzed, these experienced workers kept more than 60% of the new work income earned, we were able to read.
The CFFP returned to the theme last July with the analysis of eight profiles. “In all cases, the retention rates for work income are higher than 50%. For the lowest incomes and when the additions to work income are $15,000 or less (i.e. the equivalent of 20 hours of work per week at minimum wage), retention rates vary between 66% and 73%,” she concluded.
When compared to the situation of a non-retired household whose spouse decides to seek additional income, for a comparable work income at the start, “with the exception of high-income households, retention rates of work income are always higher for retirees […] In the case of high-income households, it is the recovery of the Old Age Security Pension (PSV) that explains these lower rates than those of workers”.
With the shortage of manpower, why not encourage “young” retirees in their sixties by allowing them to return to the labor market (part-time) without however being penalized in tax terms?
Added to the incentive to work for older people is the possible postponement of the start of payment of the OAS and the pension from the Québec Pension Plan, which considerably increases the deferred benefits.
A change and addition to the tax system has strengthened the incentive for older people to stay in work.
First, the Guaranteed Income Supplement (GIS). Eligibility for GIS depends on income, which includes all income except OAS, and working income includes both employed and self-employed income. From now on, the first bracket of $5,000 of work income net of social security contributions does not have to be considered in the calculation of the income used to determine the GIS. And, for work income between $5,000 and $10,000, only half should be included in the calculation. Prior to July 2020, the working income gains exemption was only $3,500, and this did not cover self-employment income, explains the CFFP.
Then, the tax credit for career extension, a Quebec measure implemented in 2012. This is a non-refundable tax credit aimed at eliminating the tax payable on part of the work income experienced workers in order to encourage them to remain in or return to the labor market. This 15% tax credit applies to work income over $5,000. The maximum credit is $1,500 for people aged 60 to 64 and $1,650 from age 65. The credit is reducible when the work income exceeds a certain threshold ($36,590 in 2022), continues the CFFP.
This text is taken from our Courrier de l’économie.