Second job... Tax impact

Taxsaver,
Having a second job might push you up into a higher tax bracket, which would raise your marginal tax rate. At the same time, it might result in you paying lower payroll taxes if you are close to the cutoff point.
For 2009, the second federal tax bracket (a 22% marginal rate, up from 15% below this point) starts at $40,726. For CPP contributions (a 4.95% marginal rate if you work for someone else), you stop making contributions above the $42,800 threshold. EI contributions (a 1.73% marginal rate) stop above $42,300. So you see, if a second job pushes you over $40,000, although your marginal federal tax rate goes up, this get partially offset by the decrease in your payroll taxes (CPP and EI premiums). I haven't talked about provincial taxes because I don't know which system would apply.

If you do take a second job, you should take your other income into account when filling out the required tax form (I forget its number). Basically, if you don't your second employer might withhold too much tax, CPP and EI. This overpayment will be refunded when you file your taxes, but it is much better to tell payroll to withhold less tax, CPP and EI rather than give the government a zero-interest loan.

Nah. I was writing that response in the midst of 1,000 interruptions from my kids, and I was not as clear as I could have been.

My intention was to respond to Alexandra's post saying that if the income from your two jobs combines to bump you up a bracket, you will owe more tax. And while this is true, the phrase "each of your employers is deducting tax as if you are in a lower bracket than you are" is misleading.

Each employer will deduct tax as if the income you are earning is the only income you are earning. Your employer is responsible to calculate and withhold income and payroll taxes for the income you earn with them, not your total income (you are the one responsible for that!).

Also, the middle income tax bracket is very wide. Unless you are near the top, or your earnings from your second job are substantial, you will likely not be bumped up a bracket. Instead, what you will need to do is pay the tax on income from Job no. 2 for the bracket you are actually in, whatever that is.

So, if you are in Ontario and earning $45,000 in job 1 and $5,000 in job 2; your combined marginal rate is 31.15% (and that bracket goes from roughly $40 - $65K, which is why I said it was wide). What will happen come tax time is not that you will be bumped up a bracket, but that you will need to pay tax on the earnings from Job no. 2 at the correct rate, which is 31.15%. Your employer will have withheld payroll taxes in Job 2 at the applicable rate for $10,000 in income, which is 21.15% of the amount by which your income exceeds the basic personal exemption ($8991 for 2009).

Clear as mud?!