As American readers and writers in the personal finance realm, we know more things about the finances of people in other countries than any of our American peers would ever want to know. More specifically, we have access to tons of great Canadian personal finance writers that keep talking about RRSPs and TFSAs and other acronyms that most Americans have never heard of and probably never will. Meanwhile, the Canadians are reading about our 401(k)s and IRAs (which they probably already knew about because everyone knows everything about us, right? ‘Murica!)

Well today I’m going to go over a bit of information on taxation for low income earners – those individuals in college or recent graduates – for both countries. As an American tax accountant, I pretty much know everything there is to know about the tax code*. And I’m basically an expert on Canada too as I’ve watched a lot of Degrassi and I went there once when I was four.

Disclaimer: This information is applicable for the 2012 Tax Year. Don’t read this in 2025 and get mad because the tax rates are up to 60% but I said 15%.

#1: Tax Rates. Both Canada and the U.S. are on progressive tax systems, meaning that the more you make, the higher the percentage of tax you have to pay. In the United States, marginal tax rates range from 10% – 35% federally. Most states and many localities tax residents again at varying rates. In Canada, marginal tax rates range from 15% – 29% federally and then anywhere from 5.06% – 21% provincially/territorially, depending on where you live. Federal and Provincial/Territorial tax is administered by the CRA, unless you live in Quebec – a province that is apparently too good for the CRA. Calm down, Frenchie.

Both Canada and the U.S. have standard deductions/exemptions/credits that assist lower income people in lowering their taxable income. While I would love to explain exactly how taxable income is calculated, I won’t for the sake of brevity. Ain’t nobody got time for that! Suffice it to say, there are serious tax benefits to being low income and both countries have tax systems in place to keep very low earners from paying any federal tax.

#2: Education Deductions/Credits. Both the U.S. and Canada want to award students for borrowing a lot of money and going to school. The U.S. has the American Opportunity education credit (up to $2,500) and Lifetime Learning education credit (up to $2,000), which are based on qualified expenses paid to an eligible post-secondary institution. Another option is the Tuition and Fees Deduction, which can reduce a student’s taxable income by up to $4,000. For recent graduates starting to pay back their loans, up to $2,500 of student loan interest is deductible annually.

Canadians can claim $400 for each whole or part month in the year in which they were enrolled in a qualifying educational program as long as they were enrolled full-time (or part-time with a disability). They can also claim tuition fees incurred for the courses taken within the year as long as the fees are greater than $100. To offset the ridiculous prices of textbooks, Canadians can claim $65 for each full-time month and $20 for each part-time month. Like Americans, Canadians can claim interest paid on their loans, but they can carry interest forward for 5 years, which is awesome. Americans have to claim it for the year paid but Canadians can defer interest paid to offset higher taxation as they increase their income.

#3: Lottery winnings. Low income earners are not usually satisfied with their low incomes. They want to be rich, quick. So they play the lottery. If Americans win and take the installments, they have to include the annual payments and any amounts received that are designated as interest on the unpaid installments in their gross income. And then there is Canada…

THEY DON’T TAX THEIR LOTTERY WINNINGS. Like, for real. So it would make sense that Americans that play the lottery would want to move to Canada right? Wrong. Because unlike Canada, the U.S. taxes on a citizenship basis, not a residence basis. Move wherever you want Americans, if you are making money there, you are going to have to pay the piper.

Tax season is pretty much the only time of the year that us lower income people get the breaks (unless you are a tax accountant, then the double whammy of mediocre pay and increased stress and anxiety hits you like a ton of bricks. Or feathers. Whatever, it’s a ton.). It’s the one time of the year our student loan debt actually helps us a little. Live it up, broke people! Our time has come.

Whether you hail from the US or Canada, H&R Block At Home Online Taxes is currently offering a discount on their tax preparation software until February 18th, and since you have to file your taxes anyway, now is as good of a time as any.

*I do not know everything about the tax code. Have you ever seen the tax code? I’ve worked in tax a year; you should not expect that much from me. This article is comprised of information from one year of tax preparation experience in a CPA firm, five years of preparing my own tax returns, and Lord Google**.

**C’mon I took this more seriously than Google. Any actual tax information came from www.irs.gov or www.cra.gc.ca. At the very least, I verified what I learned via Google on the aforementioned sites.