Starting Your First Job: Tax Guide for New Employees in Canada

Your first T4: what every box means

Your employer issues a T4 slip (Statement of Remuneration Paid) by the last day of February each year. It summarizes everything that happened on your payroll for the previous calendar year. Here are the boxes that matter most:

The number in Box 14 goes on line 10100 of your T1 income tax return. The numbers in boxes 16, 17, and 22 are credits against the tax you owe — they reduce your balance owing or increase your refund.

If any boxes seem wrong — for example, Box 14 does not match what you expected to earn — contact your payroll department before filing. Employers can issue amended T4s (called T4 amendments) to correct errors.

TD1 form: federal and provincial

When you start a new job, your employer will ask you to fill out a TD1 (Personal Tax Credits Return). There are two forms: federal (TD1) and provincial (e.g., TD1ON for Ontario, TD1BC for British Columbia). These tell your employer how much tax to withhold from each paycheque.

The basic personal amount

Most people simply claim the basic personal amount — $16,129 federally in 2026 — and nothing else. This means your employer withholds tax as if your first $16,129 of income is tax-free, which aligns with how the federal basic personal amount credit works.

When to claim additional credits

You can claim more on your TD1 if you have other eligible credits, which reduces withholding so you get your money during the year rather than as a refund later. Common additional claims include:

• Tuition carryforward: If you have unused tuition credits from prior years, you can claim them on line 11 of the TD1 to reduce withholding. You still report and apply them on your actual return.
• Disability amount: If you or a dependent have a certified disability (Form T2201 approved by CRA), claim the disability amount on line 7.
• Pension income: Not relevant for a first job, but worth knowing for later.

What happens if you claim too much?

If you overstate your credits on the TD1, your employer will under-withhold, and you will owe a balance when you file. Claim only what you are genuinely entitled to. If your life circumstances change — new dependent, marriage, disability — update your TD1 forms with your employer.

How marginal tax brackets work

Canada's income tax system is graduated — also called marginal. This is one of the most misunderstood concepts in personal tax, and it is important to get it right early.

Key principle: You do not pay your top tax rate on all of your income. You pay each rate only on the income that falls within that bracket.

For 2026, the federal brackets work roughly like this:

Provincial rates stack on top of the federal rates. So if you are in Ontario earning $80,000, your combined federal-plus-provincial marginal rate on the income between $57,375 and $80,000 is not 33% — it is closer to 31–33% combined. But your effective rate (total tax divided by total income) will be much lower than your marginal rate, because the income below each bracket threshold is taxed at lower rates.

Why does this matter? When someone says "I don't want a raise because it will push me into a higher bracket," they are wrong. A raise always puts more money in your pocket — the higher rate applies only to the additional dollars, not the ones you were already earning.

RRSP: your room is already building

A Registered Retirement Savings Plan (RRSP) allows you to deduct contributions from your taxable income and let investments grow tax-deferred until withdrawal.

Your RRSP contribution room accumulates at 18% of your previous year's earned income, up to an annual dollar limit ($32,490 for 2026). This room appears on your Notice of Assessment after you file each year's return.

Should you contribute right away?

For most first-job employees, the answer is: not urgently. Here is why:

• If your income in your first year is modest (say $45,000), your marginal rate is relatively low. An RRSP deduction saves you approximately 20–25 cents per dollar contributed.
• RRSP room never expires — unused room carries forward indefinitely. You can wait until you are in a higher bracket and get a bigger deduction per dollar contributed.
• The TFSA (below) is often the smarter starting point for first-job employees.

That said, if your employer offers RRSP matching — contributing a percentage of your salary to your RRSP — maximize that match immediately. Free money beats all tax optimization strategies.

TFSA: the best first account for most people

A Tax-Free Savings Account (TFSA) lets you invest money and withdraw it — including all growth and income — completely tax-free. Unlike an RRSP, you do not get a deduction for contributing, but you never pay tax on what comes out.

Contribution room

TFSA room accumulates at a flat amount each year ($7,000 in 2026) starting in the year you turn 18. Unused room carries forward. Withdrawals also regenerate room — on January 1 of the following year, you get back whatever you withdrew.

If you turned 18 in 2009 or earlier and have never contributed to a TFSA, your cumulative room by 2026 is approximately $102,000. If you were born in 1991 and turned 18 in 2009, that full amount is available to you.

Why the TFSA works better than RRSP for many first-job employees

• At lower incomes, the tax savings from an RRSP deduction are modest — and you pay tax when you take the money out in retirement.
• A TFSA lets growth compound tax-free, and you can access the money without tax consequences if you need it.
• TFSA withdrawals do not affect income-tested benefits like the GST/HST credit, GIS, or OAS in retirement.

Canada Workers Benefit (CWB)

If your employment income is below approximately $33,000 (the exact phase-out threshold varies by province and family situation), you may be entitled to the Canada Workers Benefit — a refundable tax credit designed to support low-income workers.

For 2025, the maximum basic amount is $1,590 for single individuals. There is also a disability supplement for eligible workers.

CRA calculates this automatically when you file your return — you do not need to apply separately. Advance CWB payments are also issued quarterly during the year (in July, October, January, and April) based on your previous year's return, so filing on time is important to receive them.

Will you get a refund or owe money?

Withholding tax (the amount deducted from your paycheque) is based on an annualized projection of your income. Your employer assumes you will earn this salary for a full 12 months and withholds accordingly.

Typical refund situations

• Mid-year starters: If you started a job in June or September, your employer may have withheld tax as if you would earn a full year of that salary. Since your actual annual income is lower, you over-paid and will receive a refund.
• Multiple jobs: If you had two part-time jobs simultaneously, each employer may have treated your pay as if it were your only income and applied the basic personal amount twice. You may owe a balance when the income is combined on your return.
• No deductions: If you have no deductions beyond the basic personal amount, your withholding is typically close to accurate, and your refund or balance will be small.

How to avoid surprises

Use CRA's online payroll deduction calculator or a tax software estimate to check whether your withholding is on track. If you expect a large balance owing, you can ask your employer to withhold additional tax per pay period by submitting a revised TD1.

Student loan interest, moving expenses, and other first-job deductions

Student loan interest (line 31900)

If you have a government-issued student loan (Canada Student Loan, provincial student loan), you can claim a federal non-refundable tax credit for interest paid — 15% of the interest paid in the year. This is a credit, not a deduction, so it reduces your tax rather than your taxable income. Interest on private student loans (such as a line of credit) does not qualify for this credit.

Moving expenses (line 21900)

If you moved at least 40 km closer to a new place of work and your move was to start working at a new location, your eligible moving expenses are deductible against your employment income from that new location. Deductible expenses include:

• Transportation and storage of your belongings
• Travel costs (meals and lodging en route)
• Temporary lodging near your old or new home (up to 15 days)
• Cost of cancelling your lease at the old residence
• Cost of selling your old home (real estate commission, legal fees)

The deduction cannot exceed the employment income earned at the new location. Unused amounts carry forward to the following year.

Tuition tax credit

If you completed post-secondary education in the year you started working, you can claim the tuition tax credit for tuition fees paid to eligible institutions. The federal credit is 15% of eligible fees. Unused credits carry forward indefinitely or can be transferred to a parent, grandparent, or spouse (up to $5,000 federally).

Frequently asked questions