How brackets really work
Federal and provincial tax brackets are slices. Moving into a new bracket only changes the rate on the dollars in that new slice.
Example: the federal brackets in 2026
The federal rate rises from 14% to 20.5% at $58,523 of taxable income.
- Income $58,000: all taxed federally at 14%.
- After a $1,000 raise to $59,000:
- $523 is taxed at 14%: about $73
- $477 is taxed at 20.5%: about $98
Federal tax on the raise: about $171. Your provincial tax works the same way, with its own brackets, and CPP and EI take a little more until you reach their yearly maximums. Your pay below the threshold is taxed exactly as before.
A bigger raise, start to finish
Here’s a $5,000 raise that crosses the same federal line, with everything that comes off it:
| Part | Amount |
|---|---|
| Federal income tax | $770.57 |
| Ontario income tax | $436.31 |
| CPP and EI | $379.00 |
| You keep | $3,414.12 |
| Your raise | $5,000.00 |
You keep 68% of the raise, and the pay you had before is taxed exactly as it was. Provincial tax includes any health premium.
You keep about two-thirds of the raise. See it for your own salary and province with the income tax calculator, which shows how much of every extra $100 you keep.
Why the myth sticks
- More of each paycheque goes to tax after a raise. Your average rate creeps up, even though the rate on your old pay hasn’t changed.
- Bonuses look heavily taxed. Employers withhold tax on a bonus as if it were part of a higher yearly income. If too much is taken off, you get it back when you file. The bonus tax calculator shows what to expect.
- People quote the top rate. In Ontario, the combined federal and provincial rate reaches 53.53%, but only on income over $258,482, and only on the part above that line. See how tax brackets work.
The real catch: benefits that shrink
Some benefits fall as your family net income rises:
- The Canada Child Benefit shrinks by 13.5 cents for each dollar of family net income between $38,237 and $82,847 for a family with two children (7 cents with one child), and by less above that.
- The Canada Groceries and Essentials Benefit (formerly the GST/HST credit) and the Canada Workers Benefit fall as income rises, as do many provincial benefits.
- Old Age Security is clawed back at 15% of net income over $95,323 (2026 income), for those 65 and over.
Together with tax, they can take a big share of a raise. For a single parent of two earning $60,000 in Ontario, tax, CPP, EI and the smaller Canada Child Benefit take about $490 of each extra $1,000, before any change in the Groceries and Essentials Benefit or provincial benefits. The parent still ends up about $510 better off. Because these benefits are based on last year’s income, the drop usually shows up the following July.
How to keep more of it
An RRSP or FHSA contribution lowers your taxable and net income, which saves tax at your marginal rate and can raise these benefits at the same time. Putting part of a raise straight into a group RRSP, especially one with an employer match, is one of the best uses of it.