Some EI recipients face nasty surprise upon returning to work
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.
Take EI, for instance, particularly now that those looking to collect EI face stricter, more complex rules for keeping their benefits.
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 $57,375, 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's worse, as a group of B.C. hospital workers have discovered, that clawback can take place years after the fact — causing some to worry that they'll have to dig deep to pay the money back.
If you go even further and 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 through smaller withdrawals, thinking the hit will be their total tax bill — only to come up short later with additional taxes owing and little income.
Have you ever had to repay EI benefits? Did you appeal? Were you successful?
By Gordon Powers, MSN Money