Don’t forget CERB is a taxable benefit.
The Canada Emergency Response Benefit (CERB) provides Canadians whose jobs and income have been affected by COVID-19 with desperately needed cash to meet their basic day to day living expenses.
The federal government will provide those approved for CERB $500 per week, for 16 weeks. For those needing it for the full 16 weeks that’s $8000.
The payments and support for Canadians have been widely publicized, what hasn’t been as clear is the fact that next year they will want some of it back.
The payment is a taxable benefit. This means you will be required to report the payments you have received as income. Most people are used to receiving their employment pay after income tax has already been deducted.
This is not the case for CERB payments, they do not have income tax deducted and the income is a taxable benefit.
What you pay on the payments will be determined by your total income for 2020 and provincial tax specific to your province.
The lowest federal rate set by the government for 2020 is 15%. This means that if you receive the full benefit and you are earning $48,535 or less in total income for 2020, you will have to repay $1,200 in federal income tax.
In addition, you will also have to pay provincial income tax rates.
Have a plan
Knowledge is power – We now know the CREB is a taxable benefit and there are steps to take to avoid a shock next year when you get your tax bill.
- If possible, put 25% of the benefit into a savings account.
So that is a what the textbook would say – practically every single CERB dollar received is going to be needed to meet the basic necessities for the family. For most this will not be possible, go to option 2.
- When you return to work, ask your employer to make a small increase in the amount that is being deducted from your pay.
When you return to work, a small additional deduction will not feel as hard as trying to put 25% of your benefit to one side when you need it the most.
A key point to remember is that income for 2020 will likely be lower than 2019. Also, deductions will already have been made for the early part of the year when income was at its normal level.
If you are returning to the same job, with the same income – do the following:
- Review your total income for 2019.
- Review the total federal and provincial tax paid in 2019.
- Review income already received in 2020 (include CERB)
- When you return to work – calculate the number of pay periods remaining in 2020.
- Calculate the remaining amount of tax that needs to be paid to match 2019.
- Divide this number by the number of pay periods and work with your employer to have the correct amount deducted.
For most, this should not have a significant impact as CERB payment is likely less than employment income. Meaning total income tax may be lower for 2020 and the amount owed could be minimal. In turn, only a very small change may be required in the additional tax needing to be deducted from future pay periods.