The Canadian Emergency Response Benefit (CERB) taxes was implemented by the federal government to support households that experienced wage loss due to the COVID-19 pandemic. Initially, the program provided individuals who had to stop working because of COVID-19 with a payment of $2,000 every four weeks.

As the pandemic persisted and more people faced extended periods of financial hardship, the government extended the duration of the program. Now, households can receive CERB payments for up to 24 weeks, providing a supplemental income of up to $12,000.

However, it is important to understand whether CERB payments are subject to taxes and whether it is advisable to set aside funds to cover potential tax obligations. Keep reading to learn more about the tax implications of CERB payments.

CERB Payments are Subject to Taxes

Are CERB payments taxable? Yes, CERB payments are considered taxable income, which means you will be required to pay both federal and provincial taxes on the amount you received. The tax rate applied to your CERB payments will be the same as the tax rate for your employment income.

To determine the amount of taxes you owe, you can refer to the federal tax rates provided by the Canada Revenue Agency (CRA). These rates follow a progressive system, and you can calculate your taxes using the following brackets:

• 15% on the first $49,020 of taxable income,
• 20.5% on the next $49,020 of taxable income (the portion between $49,020 and $98,040),
• 26% on the next $53,939 of taxable income (the portion between $98,040 and $151,978),
• 29% on the next $64,533 of taxable income (the portion between $151,978 and $216,511), and
• 33% on any taxable income exceeding $216,511.

It is important to be aware of your tax obligations and consider setting aside funds to cover the taxes on your CERB payments.

Tax Implications of CESB for Students

The Canada Emergency Student Benefit (CESB) provided financial assistance to students during the COVID-19 pandemic. However, it’s important to note that CESB payments are considered taxable income. Students who received CESB will be required to pay taxes on these payments, just like they would for any other student employment income.

Considering the taxable nature of CESB, students should take this into account when planning their finances and making decisions regarding their tuition deductions. It is advisable to factor in the tax implications while determining how to best utilize their tuition deductions.

Also read: T4RIF: Registered Retirement Income Fund (RRIF) Income

Understanding the Taxation of CERB Payments

At first glance, it may appear counterintuitive to pay taxes on government-provided payments like CERB. It might seem contradictory for the government to provide financial assistance while simultaneously deducting a portion of that income.

However, the rationale behind taxing CERB, similar to other government benefits such as Old Age Security or Employment Insurance, is rooted in the principle of fairness in accounting for each individual’s unique circumstances.

CERB payments are determined based on an individual’s low employment and self-employment income. However, it’s important to note that individuals may still have income from other sources, including taxable investments or insurance benefits.

By subjecting CERB payments to taxation, the government ensures that every Canadian contributes their fair share of taxes based on their overall income. This approach ensures equity and consistency in the taxation system across the country.

Payment of CERB Taxes: What You Need to Know

The deadline for paying your CERB taxes is when you file your 2020 tax return. Typically, this deadline falls on April 30, 2021, but it may be extended given the current circumstances.

If you didn’t set aside funds for your CERB taxes, it’s important to note that your taxes are still due. Failure to pay them will result in accruing interest until the outstanding amount is settled. However, you may be eligible for the CRA’s taxpayer relief provisions, which can potentially cancel or waive tax penalties.

In some cases, the CRA might suggest considering a loan to cover your tax obligations. It’s advisable to pursue this option only if you can secure a loan at a low-interest rate. Taking on a high-cost loan could lead to additional financial challenges.

Another option to consider is using a credit card to pay your taxes. However, it’s crucial to have a solid plan in place to pay off the credit card debt as soon as possible.

Alternatively, if you find yourself burdened by tax debt, including Personal Income Tax and HST, filing a Consumer Proposal to your creditors, including the CRA, could provide a viable solution to resolve your tax obligations.

Tips for a Smooth Electronic Tax Filing Experience

Electronic tax filing offers many benefits, but maximizing its advantages requires some preparation and knowledge. Here are some tips to ensure a smooth electronic tax filing experience:

Smooth Electronic Tax: Gather Your Documents

Collect all relevant tax documents, including W-2s, 1099s, and receipts for deductions. Having everything organized before you start will make the process smoother.

Choose the Right Platform:

Research and select a reputable e-filing platform that suits your tax situation. Consider factors such as ease of use, customer support, and security features.

Create Strong Passwords:

If the platform requires an account, create a strong and unique password. Enable two-factor authentication for an extra layer of security.

Double-Check Information: Carefully review all entered information before submitting. Mistakes can lead to delays in processing or even audits.

Use Secure Wi-Fi:

When filing online, use a secure and private Wi-Fi connection to prevent unauthorized access to your personal information.

Keep Records: Save electronic copies of your tax return, as well as any supporting documents. This can be useful in case of future inquiries or audits.

File Early:

Filing early can help you avoid last-minute stress and potential delays caused by heavy traffic on e-filing platforms.

Review Payment Details:

If you owe taxes, ensure you provide accurate payment information. Double-check account numbers and routing codes to avoid payment mishaps.

Explore Direct Deposit:

If you’re due a refund, opt for direct deposit. It’s faster and eliminates the risk of a lost or stolen paper check.

Seek Assistance if Needed:

If you’re unsure about certain aspects of your taxes, seek help from tax professionals or use the customer support offered by the e-filing platform.

By following these tips, you can make the most of electronic tax filing and enjoy a hassle-free experience that saves you time, reduces errors, and ensures your tax obligations are met efficiently.