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how much tax is on cerb

How much tax will I pay on CERB?

How much tax will I pay on CERB?

Approximately 8.5 million people claimed the Canada Emergency Response Benefit (CERB), according to the federal government. Many of them are now wondering how much tax they will need to pay on CERB deposits.

If you’re among these Canadians scrambling to avoid tax issues keep reading as we evaluate Canada Revenue Agency’s guidance on CERB taxation. We will also share how Alpine Credits can help if you owe a large amount after filing your taxes.

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how much tax is on cerb

Determining how much tax you’ll pay on CERB

The amount of money you received through CERB will be taxed at your ordinary federal and provincial rates. According to the Canada Revenue Agency, federal individual income tax rates are as follows:

  • 15% on your first $49,020 of taxable income
  • 20.5% on your next $49,020 of taxable income
  • 24% on your next $53,939 of taxable income
  • 29% on your next $64,533 of taxable income
  • 33% on any taxable income above $216,511

Find more information about these rates (along with provincial and territorial rates) on the Canada Revenue Agency’s website here.

How much tax do you pay on CERB? Example #1

Let’s look at an example of how much tax you’d pay on CERB in light of these numbers. Note that this is for illustrative purposes only. To figure out exactly how much tax you’ll pay on CERB, work with a licensed accountant. They’ll evaluate your entire financial picture for the year, including any credits you may qualify for.

With that out of the way, let’s assume you live in Ontario and received $4,000 in pre-tax employment income for the first three months of 2020. You were subsequently furloughed at the end of March and qualified for CERB payments of $500 weekly until September when you regained employment. Your pre-tax income in this scenario would have been $38,000.

With the aforementioned Canada Revenue Agency tax rates in mind, here’s your tax obligation as per this calculator:

Federal tax $3,167
Provincial tax $1,666
CPP/EI premiums $2,412
Total $7,245

How much tax do you pay on CERB? Example #2

Let’s look at another illustrative example.

This time, let’s assume you and your spouse received no income other than CERB in 2020. From the response benefit’s start date of March 15 to its conclusion on September 26, you would have received approximately $28,000.

If you lived in Ontario, your tax obligation would look something like this:

Federal tax $1,770
Provincial tax $1,082
CPP/EI premiums $1,729
Total $4,580

Why do you have to pay tax on CERB?

While it may seem confusing that the government would dole out a benefit then take back some of it, this is in line with how other programs (including Old Age Security) are treated. Consider the examples we shared above.

In one hypothetical scenario, the taxpayer had a combination of CERB and employment income. In the second scenario, they only received CERB income. Consequently, there’s a $6,000+ difference between the tax burdens. It was simpler for the government to pay CERB out as a standard benefit and have taxes calculated after, than to calculate and withhold amounts at the source.

How the CERB clawback will work

While most CERB recipients will need to pay taxes on their income from the benefit, some will need to pay back even larger amounts. Typically, Canadians who incur this burden did so because they claimed CERB despite not meeting eligibility requirements. For example, the CRA’s website currently highlights the following scenarios:

  • You earned more income than expected while receiving CERB
  • You received CERB from the CRA and Service Canada
  • You applied for CERB yet did not meet other qualification requirements

If you received CERB throughout 2020 yet now need to repay it based on these or other criteria, the bill and associated interest, in some cases could be substantial.

How to pay tax on CERB if you don’t have the money?

While it was simpler in some ways for the government not to withhold taxes on CERB, this has left many taxpayers scrambling. Some, for example, may not have been aware they’d need to pay taxes on the benefit at a later date. If you’re in this situation and didn’t set enough money aside, it’s quite understandable you’d be stressed.

Here are some of the ways you can pay this debt off faster:

1. Own your home? Consider a home equity loan

Many Canadians have found themselves struggling with debt in the pandemic’s wake. The nation’s average household debt ratio climbed to a staggering 170.7% by December.

If you’re among these Canadians struggling to keep up with a small or a large amount of debt, it’s worth considering a home equity loan, which comes at a relatively low interest rate and is among the easiest ways to borrow that much money.

At Alpine Credits, we believe homeowners should have an easy way to access this rapidly-growing equity, which often represents the biggest concentration of savings for Canadian households. That’s why we’re proud to be Canada’s leading home equity lender for over 50 years.

Learn more about how our home equity loans work here. If you’re interested in learning how a home equity loan can help you eliminate tax debt, click here.

A home equity loan for the purpose of paying off CERB debt only makes sense if you:

  • Have more than $10,000 owing between your CERB tax bill and other debts (that’s the minimum loan amount we offer at Alpine Credits)
  • Have equity in your home (meaning your home is worth more than you owe on your mortgage)

2. Borrow from a traditional line of credit

Outside of these scenarios, you’ll want to consider other options. One popular choice is a traditional line of credit, which you can use to repay the loan per whatever schedule you arrange with the lender.

Even with stellar credit, however, be prepared to pay a relatively high interest rate on this loan. That’s the nature of dealing with traditional unsecured loans.

3. Negotiating with the Canada Revenue Agency

The federal government recognizes that many Canadians are struggling financially in the pandemic’s wake. To help reduce the stress regarding how much tax you’ll pay on CERB, they’ve made a number of accommodations, including interest relief from outstanding tax balances incurred during the 2020 financial year under certain conditions. Namely, you must have earned $75,000 or less in taxable income and received CERB or another COVID-19 benefit – read more here.

As in prior years, you may also be able to make payment arrangements with the CRA. You can use their payment arrangement calculator to identify a few hypothetical scenarios before getting in touch.

Once you contact the CRA, they’ll likely require information about your financial situation, including earnings, expenses, and other debts.

If you’re able to secure a payment arrangement, it can make eliminating your CERB taxes much easier.

Contact Alpine Credits today for a CERB tax loan

If you owe the CRA a significant amount of money related to the Canada Emergency Response Benefit and own your home, contact us for assistance. We’ve been helping Canadians unlock their home equity for a whole host of reasons over the past 50 years and counting.

It’s our mission to help you! We look forward to doing just that.

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Frequently asked questions

If you received CERB, you will need to declare it on your tax return. Depending on other elements of your return, additional taxes may be levied as the CRA did not withhold any at the source. You’ll incur these taxes at your federal and provincial income tax rates.

In some cases, the government sends notices directly to Canadians who need to repay CERB. Even if you don’t receive a letter, however, you should work with a professional tax preparer to evaluate your situation and determine how CERB will impact your taxes.

You can reduce your tax on CERB much like you would other employment income. Ideas include:

  • making RRSP contributions that lower your taxable income
  • maximizing other deductions with the help of a licensed tax preparer (especially if you worked from home for part of 2020; you may be eligible to claim certain expenses)
  • maximizing appropriate tax credits, again with the help of a professional tax preparer

CERB most definitely counts as income. The Canada Revenue Agency will tax it as per your federal and provincial rates.