In 2021, if your income is more than $38,000, be prepared to pay the Tax Man!!
As in many cases, throughout Canada, people have struggled during the COVID 19 pandemic. Sudden closures, curfews, and lockdowns affected non-essential businesses, and population confinement resulted in employees salary cuts and loss of revenue.
The Government of Canada has Put in Place many programs to assist Canadians through these times, Addition to Normal EI Programs, 2021 saw the continuation of CRB ( Canadian Recover Benefit). Although Similar to the CERB, the CRB had new rules and Limitation’s placed on them:
- Payments were $500 / wk, less a 10% ($50) Withholding Tax
- A withholding tax is used to pre-pay some of the actual tax you will owe.
- In Manitoba the Lowest Tax Rate is 25.8% going up to 50.4%
- There was also an income ceiling applied in the amount of $38,000
- This means that if your net income is Over $38,000 before calculating the CRB payments, you will have to pay back upto 100% of the CRB payments you recieved
.
These challenges, although momentarily appeased by the government aid, remain present to this day and many eligible beneficiaries are now facing tax time and should expect to reimburse some or all of the benefit received, depending on their 2021 revenue.
In case you are wondering, the CRB is a fixed amount of which no tax was deducted. In pay deductions, the tax is deducted at the source on the base of the salary. Contrary to salary deductions, CERB payments do not take into account income tax. Therefore, you should expect to pay taxes on them, as part of your yearly revenue.
I received CRB, how much income tax should I expect to pay?
Many Canadians are uncertain if not unaware of this!
So let us break down a case, studying the impact of this benefit on John’s revenue and income tax for the year 2021.
For every dollar you make over $38,000, you will have to repay $0.50 of your CRB back, plus pay the tax on the remainder.
Example
- John was on CRB [1] from Jan 1st to April 15, 2021.
- During this time he qualified for 8 periods or $8,000, less the withholding Tax ($900 net every 2 weeks).
- He then went back to work for the remainder of the year. His total income was $35,000 from work.
- As $900 / Biweekly was not enough to live off of, he also needed to withdraw $5,000 in RRSP to make ends meet.
- His total income for the year is ($8,000 + $35,000 + $5,000) = $48,000
- Because his income is greater than $38,000 he will need to repay $1,000 in CRB, Plus pay tax on the remaining CRB[2] Payment ($3,000 @ 27.75% = $832.50 – $800 in W/H Tax = $32.50)
- Assuming his employer and the bank took of the correct amount of tax, John would still owe $1,032.50 on his 2021 Tax Return
What should I do??
Considering the substantial amount he will have to reimburse in income tax, John has two options
- He can pay the CRA
OR
- He can work with the professionals at OBS Financial to eliminate the tax bill and invest in his future!!
Learn more about the terms related to Revenue Benefits and their impact on your income tax on the Government of Canada website at:
https://www.canada.ca/en/revenue-agency/services/benefits/recovery-benefit/crb-impact-taxes.html