The clouds part

I've written before that Ms. Loonie does not have taxes withheld from her paycheque. Instead, she uses an ING Direct account to save up her tax payment. This will be the first tax season to test this system (until this past year, she's always had taxes withheld), so I was crunching some numbers yesterday to determine where the ING balance stands relative to her estimated taxes owing.

Ms. Loonie is a post-doctoral researcher, and as such is paid under a fellowship grant. Other than the first $500, this grant income is not tax-free, because she doesn't qualify for the educational amount (she's no longer a student). Because the income is taxed, I've been treating it as regular employment income in my calculations, with the associated CPP and EI contribution requirements.

It occurred to me yesterday, however, while looking over her T4A forms (the official CRA form to document pension, annuity and other income), that CPP and EI do not apply to her income. This effectively reduces her taxes owing by more than $2,500!

After making the appropriate adjustments, it looks like she will have more than enough saved up to cover her tax bill. That's great news, but the even better news is that she started late last year with her ING savings (she made her first contribution in late August, giving her only eight months to save up for her April 30 payment), so with a full year to save up for her 2008 bill, she can actually adjust her contribution amount, diverting 25% to build up her own cushion of savings.

I've been dreading tax season this year, worried about whether we'd have enough to cover her bill, so with this sudden realization, a huge weight seems to have lifted.

This is a good day.