If you claimed the Canada Emergency Response Benefit (CERB) earlier this year, you may need to start saving for tax time. That’s the message coming from some experts this week, as they remind Canadians that CERB payments are taxable.
It’s almost December, which means the new year is almost on the horizon.
According to some tax experts, that means it’s the perfect time to start getting ready for tax time, especially if you claimed COVID-19 benefits earlier this year.
This is because the CERB, as well as some other COVID-19 benefits, is taxable.
With that in mind, here's what you need to know ahead of April 2021:
Which COVID-19 benefits are taxable?
During the COVID-19 pandemic, multiple benefit programs were set up to provide financial support to those who needed it.
When it comes to the Canada Emergency Response Benefit (CERB) tax was not held at source, which is why applicants were able to automatically receive $2,000 upfront.
However, this doesn’t mean that claimants won’t have to pay tax on their CERB payments.
It’s also worth remembering that you may still have to pay tax on benefits that have been pre-taxed, too.
While schemes like the Canada Response Benefit, Canada Recovery Caregiving Benefit, and the Canada Recovery Sickness Benefit do have 10% withheld at source, this doesn’t necessarily mean an applicant won’t pay any additional tax come 2021.
How much will I have to pay back?
The amount you have to pay back in taxes depends on how much money you end up making across the rest of the year.
On their website, the Government of Canada explains that “you must report the CRB/CRCB/CEWS payments that you receive as income when you file your persotnal income tax return.”
This means you may have to pay more (or less) depending on how much total income you received.
For example, those who claimed the CRB and earned more than $38,000 will have to repay $0.50 of the benefit for every dollar of net income earned above that.
Come tax time, the CRA will provide claimants with a T4A tax information slip for the exact amount received in COVID-19 benefits, including the CERB.
What do the experts suggest?
John Waters, director of tax consulting services at BMO Private Wealth, told The Canadian Press that considering your marginal tax rate and other sources of income is “critical” ahead of tax time.
“ ... Get a ballpark idea of what type of tax that you might owe based on all of the income sources that you’ve got and maybe some deductions or credits,” he explained.
It was a message backed-up by CIBC’s Managing Director of Tax and Estate Planning, Jamie Golombek, who has shared similar advice in the past.
“If you had any other income in January, February or early March or you got back to work or worked part-time or you had some bit of income on the side, then you’re going to owe some money,” he reiterated.
Golombek even suggested setting aside between $25 and $40 per week right now, particularly if you think you might struggle to pay the amount in full next spring.
*This article's cover image is for illustrative purposes only.