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April 07, 2021

EI benefits can be a real headache come tax time

The number of EI recipients has fallen sharply over the past year, especially for men. In the span of a year, the number of Canadian men receiving EI benefits dropped by 13.4 per cent, while the number of women decreased by just 6.9 per cent.

Employ But with tax season on hand, some of these folks may be surprised to discover that they owe taxes on those EI benefits, a particular headache for those who were lucky enough to find a decent job sometime late last year. 

Here’s what to watch out for as the deadline approaches.

Although it’s a surprise to many 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 $52,250, 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 dipped 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.

Have you had to settle up unexpectedly after a period of unemployment? How did things work out?

By Gordon Powers, MSN Money

* Follow Gordon on Twitter here.



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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...

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...