| Comparing Canadian and U.S. Federal Income Tax Rates | |||
|---|---|---|---|
| Income In $CAD | Income In $USD | Canadian Tax Rate | U.S. Tax Rate |
| $20,000 | $14,842 | 15% | 12% |
| $50,000 | $37,105 | 15% | 12% |
| $100,000 | $74,211 | 20.5% | 22% |
| $200,000 | $148,423 | 29% | 24% |
| $500,000 | $371,058 | 33% | 35% |
| $800,000 | $593,692 | 33% | 35% |
| $1,000,000 | $742,115 | 33% | 37% |
State vs. Provincial Income Taxes
Comparing state and provincial income taxes is more difficult. In the United States, state taxation is completely outside the federal tax system. Each state has its own tax laws regarding deductions and credits. Some states, such as Florida and Alaska, have no state income tax at all.
All Canadian provinces and territories, by contrast, levy an income tax. Provincial income taxes are coordinated with the federal tax system in Canada, except in Quebec. They're based on a percentage of federal tax. The provinces have the same allowable deductions and income rules as the federal system. Each province also has additional credits and incentives.
Unemployment and Family Leave
It's not technically an income tax, but Canadians pay employment insurance (EI) premiums based on their employment income. EI premiums are paid by employees and employers. Employees pay 1.66% of maximum gross employment income of C$63,200 in tax year 2024. In the U.S., the Federal Unemployment Tax Act (FUTA) is levied exclusively on employers.
It's important to note, however, that Canada offers more robust unemployment benefits than the U.S. does. This also includes extended pregnancy leave and other parental leave as well as paid time off for compassionate care. In the United States, there is no federally mandated paid pregnancy or parental leave. The Family and Medical Leave Act (FMLA) in the U.S. covers only unpaid leave for certain family and medical reasons.
Social Security vs. Canada Pension Plan (CPP)
The Social Security benefits that kick in at retirement in the U.S. are paid out based on what individuals have paid into the system throughout their working lives. Canada has a similar system in place with its Canada Pension Plan (CPP).
American employees pay 6.2% of their wages into Social Security and 1.45% into Medicare for a total of 7.65%. The Social Security tax is capped at an income level of $168,600 annually in 2024. Income over this amount isn't taxed for Social Security. The Medicare tax has no income cap.
Canadian employees pay 5.95% of their gross employment income into CPP up to C$65,000. Medicare-style benefits are included as part of the country's healthcare plan.
The Old Age Security (OAS) program is Canada's largest pension program and it's funded by general tax revenues. The OAS pension is taxable income that's available to people who are age 65 or older, who meet Canada's legal status and residency requirements, and who don't exceed maximum income caps.
Healthcare Costs and Coverages
In Canada, medical services are part of the country's health plan, which is partially paid for through income taxes. Everyone has equal access to medical facilities, practitioners, and procedures at no additional cost under this plan, but only medically necessary services are covered. Residents only pay for non-covered care out-of-pocket or through a supplemental insurance policy. Non-covered care in Canada includes:
- Vision and dental care
- Prescription drugs
- Home care
- Ambulance services
In the U.S., healthcare must be paid for out-of-pocket or through a combination of health insurance coverage and out-of-pocket costs. All Americans contribute to Medicare in the U.S. throughout their working years. Medicare helps cover healthcare costs when people reach age 65.
Monthly premiums for U.S. health insurance plans vary based on several factors including the state you live in, your age, and whether you have employer coverage. The average monthly premium for a plan for a 21-year-old, purchased through the Healthcare.gov Marketplace, is $376 in 2024, increasing to $1,559 for a family of four. This includes copays and deductibles.
What Are the Lowest Income Tax Brackets in the U.S. and Canada?
The lowest U.S. tax bracket is 10% for income up to $11,600 in tax year 2024. It's 15% on the initial C$55,867 (Canadian dollars) in Canada.
How Does the Tax on Old Age Pensions Differ?
The systems offer similar approaches. Working people in both countries pay into government retirement funds throughout their working lives, but the amount they pay differs. Americans pay a tax of 7.65% into Social Security on up to $168,600 of their income in tax year 2024. That 7.65% includes Medicare contributions for which there's no income cap. Canadians pay a tax of 5.95% on up to C$65,000 (Canadian dollars).
Do Canadians Pay State As Well As Federal Taxes?
Yes. Every Canadian territory and province levies income taxes. Canadians could potentially pay more in income taxes overall than some Americans because seven U.S. states levy no income taxes as of 2024: Wyoming, Texas, Tennessee, South Dakota, Nevada, Florida, and Alaska.
The Bottom Line
Determining whether Canadians pay more in income taxes than Americans requires an analysis of the benefits received in exchange for taxes paid and out-of-pocket costs. Each taxpayer's personal situation can help determine whether they would be financially better off living in one country or the other, along with many other factors.
