ALL YOU NEED TO KNOW ABOUT COVID BENEFITS FOR TAX SEASON
To combat the financial impact of COVID-19, the Government of Canada enacted the COVID-19 Economic Response Plan, which included a number of benefits that have been a critical source of cashflow to millions of Canadians who lost their jobs or had their income impacted.
As of April 19, 2020, approximately 8 million Canadian’s applied for CERB, and that’s just one of the benefits offered under the program. Today, we’re going to look at the benefits you may have received, and what tax implications you need to be prepared for if you aren’t already.
COVID-19 ECONOMIC RESPONSE PLAN BENEFITS
The Canada Emergency Response Benefit (CERB) was the first financial support benefit offered by the government, paying $2,000 per month (up to a maximum of $8,000) to qualified applicants who stopped working due to COVID-19.
The Canada Recovery Benefit (CRB) gives income support to eligible individuals who are directly affected by COVID-19 and aren’t entitled to Employment Insurance benefits. If you meet the criteria, you can receive $1,000 for a 2-week period (up to a maximum of $13,000), subject to a 10% withholding tax.
The Canada Recovery Sickness Benefit (CRSB) provides income to people who are unable to work because they are sick or need to self-isolate due to COVID-19, or have an underlying health condition that puts them at higher risk of getting COVID-19. If eligible, you can receive $500 for a 1-week period, subject to withholding taxes. If your situation continues past one week, you need to apply again.
The Canada Recovery Caregiving Benefit (CRCB) is for employed or self-employed individuals who are unable to work because they must care for their child under 12 years old or family members who need supervised care. Eligible households can receive $500 for each 1-week period. If your situation continues past one week, you need to apply again.
SO, WHAT DOES THAT MEAN FOR MY TAXES?
Essentially, if you’ve received or plan to receive any of these benefits, they’ll be treated as your income and taxed accordingly. So, another way of saying that is: both the income from your job and your COVID-19 benefits will be taxed the same way.
For example, suppose you made $32,000 from work in 2020 and received the maximum CERB amount of $8,000 for four months and had no other sources of income. Your taxable income for the year would then be $40,000.
So, as you can see, there isn’t a specific set amount people will be taxed on their benefits. Because different people are in different tax brackets, they’ll also be taxed at different rates. Generally, the lower your income, the less you’ll pay. It’s even possible you won’t have to pay any tax if your annual income is under $12,000.
However, if you haven’t accounted for these additional benefits in your tax planning for 2020, it’s best to try to save a little now where you can, so that you’re not overwhelmed when your tax assessment comes. The average rate at which people’s income is taxed generally falls between 15-25%, so saving around 20% of your benefits is a good rule of thumb.
That said, don’t worry if you need to spend all your benefits on necessities now. It makes sense to deal with your current challenges, pay bills and put food on the table first. Your tax bill won’t be due until April 2021, so there’s still time to save.
As always, we’re here to help you plan your financial future. If you have any questions or need a hand, please don’t hesitate to give us a call at the True North Hub at 1-866-413-7071.