The government of Canada has several benefits, credits and deductions relating to children and child care, some with income provisions to qualify families or set the level of benefit. As employment insurance (EI) most typically accompanies job loss, it is natural to wonder what impact EI benefits may have on child care credits.
Employment Insurance Eligibility
Among other factors that make you eligible to receive EI regular benefits, you are required to be ready, willing and capable to work each day, and you must be actively seeking employment. If you decide, upon losing a job, to stay at home and look after your children to save on child care costs, on the surface you may not be meeting the EI availability and job search requirements, though in practice, you likely have a plan to handle both job search and child care arrangements, should you return to work. There is no requirement, though, for you to do so, and you are not required to stop day care arrangements to qualify for EI. Since you may still incur child care costs, you remain eligible for child care expense deductions.
Child Care Expense Deduction
Child care expenses are usually claimed by the spouse with the lower net income, or by the single parent with whom the children in care reside. Benefits received from the EI program are considered earned income for tax purposes, so EI benefits have no effect on the claim for child care expenses . Since EI benefits don’t completely replace employment earnings, the reduction of earned income may affect the earning relationship between spouses, which also changes which spouse should claim child care expenses. Child care expenses are reported on form T778, with the allowable deduction transferred to line 214 of your federal tax return.
Canada Child Benefit
Effective July 2016, the Canada Child Benefit (CCB) is a monthly payment made to qualifying families for children under the age of 18. While a taxpayer’s EI status does not affect the ability to apply, family net income is used to calculate CCB entitlement, so changes to income resulting from EI benefits may affect the amount a family receives. Revisions to individual CCB entitlements — to calculate the benefit paid — are determined by tax returns each year starting in July after the current tax season, so a family may not see effects due to EI benefits until the income changes process through a tax cycle.