How much extra tax will I owe?
To determine just how much extra you’ll owe this year, start by taking a look at your 2020 income, and add your estimated total taxable COVID-19 benefits.
You can use an online tax calculator, which will automatically place you in the appropriate federal and provincial tax brackets.
Use the calculator to estimate the taxes owing on your income without, and with, the government benefits — the difference between the two is how much extra money you should set aside for the 2020 tax year.
If you received any of the pandemic benefits, the government will send you a T4A form, which will show how much you were paid — and whether any money was already withheld — similar to the T4 you would receive from an employer.
What about other COVID-19 benefits?
The CERB program ended in September, but many Canadians were still struggling financially under the weight of the pandemic.
In its place, the federal government announced several new benefits to help Canadians, including the Canada Recovery Benefit, the Canada Recovery Caregiving Benefit and the Canada Recovery Sickness Benefit.
All three of these programs included a 10% tax withholding, but many Canadians will still have to pay additional taxes above that 10%, depending on your final income and tax bracket for the year.
If you are unsure what applies to you a tax professional may be able to help you figure it all to you.
Improve your financial well-being
How to deal with a higher tax bill
The federal government moved quickly to get money in the hands of struggling Canadians last March. But, with most of the country still under restrictions , a larger-than-expected tax bill can be hard to stomach when added to your other bills.
Here are 5 ways to lighten the load:
1. File your taxes on time
One easy way to make sure your tax bill doesn’t get bigger is to file on time to avoid any late-filing penalty.
Late filing will add a penalty equal to 5% of the taxes owing, plus 1% more for every month your return is late up to a maximum of 12 months.
Never filed your own taxes? With online tax services, it's easier than you might think.
2. Claim work-from-home expenses
If you worked from home this year, you can claim some of your expenses as a credit that will lower your taxable income.
The government introduced a $400 flat rate credit for eligible Canadians that worked remotely last year. You can even claim more than that — like a portion of your home’s operating expenses — if you have detailed receipts.
3. Make RRSP contributions
Any money that you contribute to your Registered Retirement Savings Plan will be deducted from your taxable income — that means you pay less tax.
You can actually make RRSP contributions until the end of February to bring down your taxable income for the 2020 tax year.
The best thing about these retirement accounts is that your nest egg will grow tax-free. You can easily open a secure RRSP with an automated investment service.
4. Pick up a side gig
If you’re heading toward a larger-than expected tax bill, you might need some extra cash quickly to make those payments on time.
You may be able to turn some of your skills into a valuable side hustle. There are online marketplaces that can help you find clients in need for all kinds of talents, from graphic design to life coaching.
5. Lower your other bills
Adding tax payments to your regular assortment of bills is a recipe for financial disaster. But you may be able to slash those other bills, and divert those funds to pay your higher tax bill.
If you have a solid credit score, you can try rolling multiple high-interest debts into a single low-interest debt consolidation loan.
You can also shave some money off your mortgage by taking advantage of the lowest interest rates in history. If you’re a homeowner, refinancing your current mortgage could lower your monthly payment by hundreds of dollars.
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