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February 02, 2022

What they don't tell you about EI benefits

By Gordon Powers, Sympatico / MSN Finance

Despite the fact that last week’s budget added an extra five weeks to the period when unemployed workers can collect EI benefits, being out of a job always means belt tightening — and sometimes dipping into savings as well. 

The trouble is that harried workers often find themselves making assumptions and snap decisions under pressure that can have unexpected tax consequences. Here’s what to watch out for.

Although it’s a surprise to most recipients, the government holds back part of your EI cheque in the form of withholding tax. The good news is that it assumes you’ll be in the lowest tax bracket, keeping deductions to the minimum.

The bad news is that if you do get back to work and your net income works out to more than $51,375, you may be required to pay back a portion of the benefits you received. Happily, maternity, parental and sickness benefits don’t count towards this total.

What the potential damage? Here’s a calculator that can help you figure out how much you might end up owing.

If you dip into RRSP savings to help pay some bills while looking for work, you may have a different problem though. In this instance, the withholding tax rate depends on how much you actually withdraw, not your tax bracket. For amounts up to $5,000, the rate is 10% (21% in Quebec); from $5,001 to 15,000, it’s 20% (26% in Quebec); and on amounts over $15,000, it’s 30% (31% in Quebec).

Often people try to minimize withholding tax, thinking that will be their total tax bill — only to come up short later with additional taxes owing and little income.

Don't be one of them.



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

James HaversJames Havers

James is the senior editor of MSN Money living in Toronto. He has worked for the Nikkei Shimbun (Tokyo),,, Canadian Business and other publications. Havers turned to journalism after teaching overseas.

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...