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How CERB Affects Your 2020 Tax Return

Heads up, you may owe more taxes than you think.
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The pandemic took the whole world by surprise, and put many Canadians in a difficult, unforeseen situation. In response to COVID-19, the federal government issued a series of emergency response benefits to help Canadians out in the short term – one of which was the Canada Emergency Response Benefit (CERB).

If you were one of the many Canadians who received this benefit as a source of financial relief, you might now be wondering what the tax implications are.

We want to help you feel confident in navigating that portion of your tax return. So in partnership with H&R Block, here’s what you need to know about how receiving CERB in 2020 will affect your tax return this year.

Do I Need To Repay CERB?

Depending on your circumstances, there’s a chance you need to repay the CERB amounts you received. Because everyone’s situation is different, we’ve provided a few scenarios below to help you navigate any confusion.

I Made A Mistake While Submitting A Claim

As a first step, it would be worthwhile to review the claim you submitted when you applied for CERB last year. Filling out benefit applications can be confusing and honest mistakes happen all the time. That’s why it’s a good idea to double check the eligibility criteria to be sure there weren’t any unintentional mistakes and that you don’t need to pay the benefit back as a result. If you actually made a mistake when you submitted one or more of your claims, you may need to pay the benefit back.

It’s also good to keep attune to any changes from the CRA. If you’re self-employed, keep in mind that the CRA recently updated the criteria to waive repayments for those with net income from self-employment of less than $5,000. This applies regardless of whether your payments were made through the CRA or Service Canada.

You can check your CERB applications on your CRA or Service Canada account, depending on where you filed them. If you do find that you’ve made a mistake, here’s how you can return or repay the CERB.

I Received Multiple Benefits At The Same Time

In addition to CERB, the Canadian government instituted other response benefits including:

Here’s where things may have gotten a little tricky. Even if you were eligible for several of these benefits, you should only receive payments for one. This means that if you received CERB and another CRA benefit at the same time, you’ll need to pay one of them back in full.

The same applies for Employment Insurance, by the way. If you were already receiving regular EI benefits when you started receiving CERB, you’ll need to pay it back in full.

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I Received CERB Payments From The CRA And Service Canada

There were two ways in which you could have received CERB payments depending on how you applied: CRA or Service Canada. It was technically possible for people to apply to both and receive both at the same time. While double dipping may have sounded like a great idea, if you received CERB payments from both sources at once, you’ll need to return one of the two.

My Financial Situation Changed During The Period Of My Benefit

Finally, you may need to repay your CERB if your financial situation changed during the period in which you received the benefit. For example, if you started a new job and earned more than $1,000 during one of the four week periods while you were receiving CERB, you’ll need to repay the CERB amount you received for that period.

Because repaying CERB could present financial challenges, the CRA has indicated that they will be flexible in work out a repayment schedule and will work with impacted individuals on a case-by-case basis. As a result, it’s important that you respond to any letters you receive from them to keep channels of communication open. As of when this article was published, there was no specific deadline by which CERB benefits must be repaid.

Does Repaying CERB Benefits Affect Next Year’s Taxes?

If you do need to repay CERB, you’ll receive a letter from the CRA notifying you of that. The good news is that any CERB amount you repay in 2021 can be reported on a T4A slip and claimed as a deduction next year. This reduces the total income you’ll report in 2021 and therefore reduces your income tax!

Speaking of taxes, if you’ve already repaid the entire amount you received in 2020 before December 31, 2020, then you won’t owe any taxes on it at all. If you repaid only some of the amount, then you’ll only owe taxes on the remaining amount.

For example, let’s say you received $8,000 in CERB payments in 2020 and you paid back $5,000 of it before December 31, 2020. You’ll only be taxed on the remaining $3,000.

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How Much Tax Will I Owe On CERB?

Now that you’ve determined whether or not you have to repay the CERB, it’s time to consider tax implications.

In order to maximize the amount of money you received from CERB payments, there was no tax withheld by CRA. You received 100% of the amount. However, CERB payments qualify as “income”, and much like any other income, they are taxable.

Any amount you received from CERB, that you have not already paid back, will be added to your total income in 2020. Exactly how much tax you owe is determined by what your total taxable income is (meaning your income after claiming any deductions you are entitled to), your non-refundable tax credits, and which province you live in.

If you’ve ever filed taxes, you’re probably already familiar with income tax brackets. These brackets determine how much tax you owe based on how much money you made. The more money you made, the higher the taxes. It’s important to remember that any additional income from CERB payments might put you in a higher tax bracket than you’re used to!

If you do have a balance owing on your 2020 tax return, and your taxable income doesn’t exceed $75,000, you won’t be charged interest on it until April 30, 2022. This applies to CERB, the other four federal COVID benefits, EI, and other provincial COVID benefits as well.

This gives you some time to make the repayments more comfortably but in order to qualify, you’ll have to file your 2020 income tax return so make sure you do that before this year’s deadline. Rest assured that any credits provided by the CRA that you may be entitled to such as the Canada Child Benefit or GST/HST credits will not be impacted.

What Forms Do I Need To Report CERB?

If you received CERB benefits issued by the CRA, you will be issued a T4A slip directly from the CRA showing the amount to include in income when you file your tax return. If you received CERB benefits through Service Canada, the amount will be included with regular EI benefits of a T4E slip.

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We hope this information has answered some of your questions regarding CERB. Because things are constantly changing, we recommend you review the CRA website for the latest CERB updates and how it can impact your taxes. If you’re looking for more helpful tax tips, we’ve put together a list of credits and deductions you should keep in mind while filing your 2020 tax return!

H&R Block is here to help guide you through your most complicated tax year. No matter what your life or work situation is, or your preferred filing method, an H&R Block tax expert can make your taxes simple, helping you get through this year’s tax changes.

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