What to do if you need to pay back CERB

2020 was a year that most people would not want to repeat. The challenges, including the cessation of movement orders by various governments, affected revenue generation for many. The Canadian government responded to the situation by availing Canada Emergency Response Benefit as one of the financial support programs for the residents. Initially, the eligibility criteria were not very clear, which may have led to many beneficiaries getting high CRA bills later. It is now becoming clear that what may have been a lifeline to many may have some serious setbacks.

CERB overpayment causes

At the time of issuance, the government did not pay a lot of attention to proof of eligibility. Interested parties would apply, and proof of their status would be reviewed later. It is believed that the government spent over $81 billion to cushion 8.9 billion people between March and October of 2020. The move may have been a great help to Canadians, but it also left many feeling vulnerable to more financial burdens.

The government has sent most people letters regarding overpayment of the CERB. CBC reports that half a million people have received letters asking for more information to determine if they were eligible for the program. According to Global News, Canada Revenue Agency (CRA) told recipients of those letters that they should not interpret them as in-eligibility for the funds because they are just a way of getting more information.

CERB repayment categories

Not everyone is expected to pay back the CERB. If you fall in the following categories, the chances that you’ll be expected to pay are high.

Those who took CERB twice

In 2020 November, the CRA issued a warning that over 200,000 Canadians had been given CERB twice and had to pay back that money. Most of the people in this category had applied through CRA and Service Canada. They also received letters but were not required to start repayment immediately if they make a plan to start paying the excess money they received.

Low-income earners in the previous year

Those who did not earn enough money in the year 2019 as self-employed or formally employed may also be expected to pay back the loan. Part of the qualification criteria for eligibility was at least $5,000 the previous year, or at least 12 months before the application time.

It remains unclear whether those who got paid in other forms like pensions, disability benefits, employment insurance, student loans, and bursaries are also included in this category. Further confusion arises because the government did not clarify whether the minimum income was to be calculated as gross or net income.

Those who mistakenly got the funds will not be required to pay the excess back if they met the minimum gross salary income. Instead, Service Canada and CRA will refund them the extra money they sent back.

Those who failed to file taxes in 2019

The CRA also targeted those who did not file their returns because there was no way of proving their income. The best option for people in this category is to file those taxes as soon as possible.

Personal income taxes vs. CERB

CERB funds do not have tax levies, but they are taxable. The current financial program, which replaces CERB, is the one with 10% taxes being withheld. If you are enrolled in this program, the taxes you may be owing is determined by the amount of money you are earning from all your income sources.

Those who mistakenly received the money but returned it by 31st December 2020 will not be affected by tax implications on the extra payment. Taxes will only be levied on the funds they were entitled to get. However, CERB payments refunded after the 31st will have taxes on the whole amount disbursed, but that situation may change after the filing of 2021 tax returns.

CERB funds are taxable as income taxes, which means tax slips are issued after filing. Other sources of income and the regular marginal tax rates will determine the amount of tax that ends up being paid. For example, if you got $500 CERB funds every week for at least 8 weeks in 2020, the taxable amount for that year will be $14,000. Since the federal basic personal amount is $13,229, taxes for the CERB will be very little. That changes if there were other income generation sources or tax credits.

Relief for the taxes

The government reported that those who had less than $75,000 taxable income and received the pandemic funds would get tax relief in the form of zero interest until April 30th, 2022. This provides much-needed relief for most people, but it doesn’t take away the debts. Instead of waiting until the deadline, start planning how to pay back the money without interfering too much with your budget.

How can I return CERB payments?

The government, through Prime Minister Justin Trudeau, said that they would not impose a specific deadline for those who applied for the relief funds. This is supposed to be a sign of good faith as the government intends to work with individuals systematically. There won’t be penalties or taxes either.

Self-employed residents earning a minimum of $5,000 gross salary and were eligible for the funds, but received some amount by mistake, will not be forced to pay back the excess. Only those who did not pay taxes for that year, those who did not meet the $5,000 income mark, those who got paid twice, and those who listed ineligible sources of income will pay back CERB.

The government is expected to implement a repayment plan that allows everyone, especially the financially unstable group, to pay back the funds without much strain. That may mean giving the people a reasonable period to do so or considering the financial capacity of every individual as they work case-by-case with them. Some of the factors they are expected to consider are monthly income, loans being serviced, expenses, and other financial obligations a person has.

The government is still working on CERB repayment details, but the following tips can help.

  • Filing tax returns early to give yourself ample time to consider all possible repayment options. The CRA already mentioned that they would be giving each person a befitting payment arrangement according to their financial abilities.
  • Consulting tax lawyers to determine how to manoeuvre back taxes and possible penalties and interests in the self-employed category.
  • Repaying CERB overpayment as soon as possible if you have enough funds to do so.
  • Adjusting your personal budget to accommodate the CERB repayments.

Reach out to YorkCredit

CERB repayment is just one of the many financial issues that may put a constant strain on your budget. YorkCredit can help you reduce the financial burden and create a befitting money management program that will prevent recurring money problems.