Whether you have a bun in the oven, a new baby at home or are getting ready to adopt, you’re no doubt excited for this big change. Since your little addition comes with the new job of parenting, it’s no surprise that there will changes to your income and tax situation. Though it might not be the first thing on your mind, understanding your maternity, parental or adoption leave support will help save you some time down the road. We’re helping by answering some of the most common questions our Tax Experts get about how becoming a parent affects your taxes.
I’d like to take some time off work when the baby comes. Am I eligible for Employment Insurance (EI) benefits?
In general, you need to have worked 600 insurable hours the year before you claim parental leave benefits to qualify for them.
Looks like I’m getting Employment Insurance (EI) benefits during my time off. Will I be taxed on them?
The short answer is yes. Any money you receive from EI is income, and needs to be reported on your tax return – there’s no exception for maternity/parental or adoption leave benefits. It’s important to remember that EI usually withholds 10% or less for tax purposes, and since the lowest federal tax rate is 15%, this can create a tax bill for new parents when you file your tax return, depending on when your leave started. With this in mind, it’s good to be prepared for a tax bill or set some of your maternity/parental /adoption leave benefits aside to pay in April.
Will I receive any other federal benefits?
Most parents who are residents of Canada are eligible to apply for the Canada Child Benefit (CCB), and most hospitals have a registration system that automatically provides the info to the CRA when your baby is born. If yours didn’t, or your circumstances were different, you can download and send Form RC66 to the Canada Revenue Agency (CRA) for your new baby. The CCB is based on your net family income and the number of children you have. The more you make, the less you receive, but the good news is it is you don’t pay any tax on what you receive.
One of my children is in daycare. Can I deduct this expense if I’m getting EI benefits?
With another child or more children, it might seem like a full-house with the new baby around. If you’re paying for an extra set of hands, or have a child in daycare, these expenses are still a tax deduction, but you can’t deduct these costs against your parental leave income. Remember that these expenses need to be claimed by the lower income spouse, which is usually the parent on leave. So, when you took your leave and whether you have other employment income during the tax year will affect whether or not you can claim your childcare expenses.
My partner and I live together with our child, but we aren’t married. Am I eligible for the same benefits?
Yes. Your marital status is considered common-law for tax purposes as soon as there are any children involved, and benefits are calculated for your household in the same way.
Becoming a parent is a big change, and who really knows what to expect when you’re expecting! Kids always keep us guessing, so it doesn’t hurt to keep track of your documents and keep the guesswork out of your taxes.