For many Canadians, the Canadian Emergency Response Benefit (CERB) has provided much needed financial assistance to help meet daily living expenses during the pandemic.
With tax season approaching, you might be wondering what will happen with my taxes when you report CERB income. CERB is different from regular forms on employment income, as it doesn’t hold income taxes before it’s paid out, which means you might have tax owning in April 2021.
To avoid facing any unpleasant surprises come tax time, it's important to check and see if you might owe any income tax on the CERB that you received in 2020. To start, you can utilize the income tax calculator online or an accountant, if you have one. This will help provide you with the estimated amount that you might owe.
One way to help reduce the potential of outstanding taxes owed in April includes taking advantage of RRSP contributions. If you have unused contribution room, you can make payments to your RRSP to help effectively offset the CERB amounts you received. This also allows you to build your nest egg for retirement.
If you don’t have contribution room left, another option is to open a TFSA to set money aside so come April, you don’t have to stress since you’ll have a good portion of that money already.
The more you do now to determine what kind of taxes you will owe on your CERB payments and how to offset those with deductible contributions, the less stressful tax season will be.