Many Canadians are concerned about the tax implications of taking CERB. Here is some information on what you can expect so you can prepare early for the 2020 income tax year.
- Determine your total potential income for 2020, including the CERB amount.
Total $ earned prior to lay-off
+ Total $ from CERB (up to $8,000)
+ Total predicted income for the remainder of the year
= Total potential 2020 income
Example: This individual typically makes $42,000 annually, averaging at $3,500 monthly.
$10,500 prior to lay-off ($3,500/m Jan-Mar)
+$8,000 CERB ($2,000/m Apr-Jul)
+$17,500 predicted income ($3,500/m Aug-Dec)
= $36,000 total potential 2020 income
*It may help to look at previous years if you earn a steady income.
- Calculate your marginal tax bracket.
Example Continued: Assuming the above individual is a BC or Alberta resident.
Federal tax bracket: BC 15% AB 15%
Personal tax bracket: BC + 5.06% AB + 10%
Marginal tax bracket: BC = 20.06% AB = 25%
*The marginal percentage does not apply to your whole taxable income, as the rates are incremental. Read more about Marginal vs. Average Tax Rates from Retire Happy.
Keep in mind the amount you calculate will be before other tax credits or deductions that may apply. Nevertheless, knowing the full tax payable can save you from an unexpected and overwhelming tax bill in 2021.
Read more on How to Calculate What You Will Owe on CERB Payment from the Financial Post.
The Simplified Financial team is here for you. We can help you establish a savings plan to reduce the burden of paying a high tax bill. Please give us a call!
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