What you Can Expect on your 2020 Taxes and How to Prepare.
Its 1:00am, you’re sitting at home in your pajamas with an empty pizza box in front of you, Netflix playing in the background, and you click “complete purchase” on your second online order this week. Sound familiar?
Nobody is blaming you. You’ve been at home for so long now and every company is desperately competing against each other in a chaotic sale war you just can’t help but take advantage. I mean you’re getting free money through CERB right? Wrong.
The Canada Emergency Response Benefit or CERB is taxable income. This means that when you file your 2020 taxes next year, you will have to declare all the money you earned from CERB or any other Covid-19 response benefit.
The rate you will be taxed on is dependent upon where you live in Canada and how much you expect to make. If you make $12,000 or less, you won’t have to pay income taxes. If you make more than $12,000, you can calculate how much your tax will be by using the federal cost and adding it to the provincial tax rates.
Let’s look at a few different tax bracket examples for repaying CERB.
|Taxable Income (Including CERB of $12,000)||Tax Rate: Federal + Provincial||Tax Payable* on CERB (Portion of $12,000)|
*Taxes are more complicated than simply “I make x, so at y rate, I pay back z”. There are a wide variety of deductions, credits, and expenses that can influence how much or how little tax you pay. Based on your personal financial situation and what deductions, credits, and expenses you claim, you might not have to pay this final amount.
A good rule of thumb is for every $2,000 of CERB you receive, you should save between $400 and $700. For many this is an unrealistic expectation as people have numerous expenses, topping the $2,000 they are receiving for CERB. Saving CERB money may not be realistic for you right now, but that’s ok.
There are many ways you can reduce costs in your family’s budget. Some immediate changes you can make to save money include:
- Selling unwanted valuables
- Eating out less and cooking more
Understanding your finances can be a daunting task, especially during these times. Investing in a financial advisor can help you and your family have a clearer understanding of your funds and plan toward a financially secure future.
Hummingbird Financial is here to assist you with all your financial needs! For any questions or to request a free consultation, click here.