What you need to know about maternity leave and your tax return

December 15, 2014

Even though your income is lower while on mat leave, it doesn't mean that you won’t have to pay tax on it. Read on to find out more.

What you need to know about maternity leave and your tax return

If you've been paying into employment insurance for the required amount of time leading up to your mat leave, you’ll be entitled to Employment Insurance (EI) pay from the Canadian government.

  • Unless your employer is topping up your EI payments to match your usual working income, you’ll have to get used to less money coming in while you are home with your baby.
  • But even though your income is lower, you can’t assume that you won’t have to pay tax on it.

Here’s what you need to know about your tax return and your maternity leave.

The money you get on mat leave is taxable income

This income can include anything from a top-up from your employer to income from part-time employment while on mat leave, or from EI or Quebec Parental Insurance Plan (QPIP) maternity and parental benefits you are receiving.

  • Keep in mind that the tax year will probably not be exactly in line with the time you are on maternity leave.
  • Your taxable income is actually calculated based on your income from that entire year.
  • This could mean that you could be facing a bill on top of the amount that was deducted from your mat leave pay.

How to avoid owing after your maternity leave

You are taxed on your EI based on the assumption that those EI payments are your only income for the tax year.

  • So it's easy to fall into the trap of owing more tax than you expected.
  • One way to prevent this is to file a TD1, which allows you to have more taxes withheld.

It’s best to plan ahead when it comes to your taxes

Some things you can do to avoid an unexpected tax bill are as follows:

1. Be sure to put aside money during your mat leave to plan for paying any balance owing from your income tax at year end. If it ends up being that you don’t owe any money, all the better for you—but at least you have planned for it.

2. If you’re going to be getting a top-up from your employer, ask about what kind of tax will be deducted.

3. If you determine or suspect you might end up owing much more income tax at the end of your maternity leave, you can always ask your employer to deduct more income tax.

Ask questions

It’s not always easy to predict everything to do with your tax return and maternity leave.

  • By asking knowledgeable people the right questions and putting some money aside just in case you owe, you should be able to avoid unwanted surprises.
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