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 daycare 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 and EI
Child care expenses are usually claimed by the spouse with the lower net income, or by the single parent with whom the children reside. Although you use net income to establish eligibility to claim the expenses, it is the earned income that you use to calculate how much you can claim. For married couples, regular benefits received from the EI program are not considered earned income for the purpose of calculating the child care expenses unless both supporting parents are enrolled in an educational program.
For example; If you are receiving EI benefits and are enrolled in an educational program, but your partner is earning employment income, you will not be able to claim any child expenses amount. However, your partner will claim only the portion of expenses paid while you were attending school.
Similarly, if you are a single parent receiving regular EI benefits, you will not be able to use the amount as earned income unless you are enrolled in an educational program.
So, if the only income you and your partner have is from a regular EI benefit and both of you are not enrolled in school, your earned income will be considered zero. However, other benefits paid by the Employment and Social Development Canada such as the Apprenticeship grant, are considered earned income.
Child care expenses are reported on form T778, with the allowable deduction transferred to line 21400 of your federal tax return.
Canada Child Benefit
The Canada Child Benefit (CCB) is a non-taxable monthly payment made to qualifying families for children under the age of 18. A taxpayer’s EI status affect the ability to apply for the child care expenses deduction, it also affects the family’s net income that 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.
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