Are Maternity Leave Payments Taxable?
Maternity and Parental benefits are a form of Employment Insurance (EI) which provide financial assistance to people who are away from work because they are pregnant, have recently given birth, or because they are caring for their newborn or newly adopted child.
Maternity benefits are only available to those who are away from work because they are pregnant or recently gave birth. Qualifying individuals can claim a maximum of 15 weeks of maternity benefits. The benefits can start up to eight weeks prior to due date and receivable up to 17 weeks after birth. The current benefit rate is 55% up to $562.00 per week or maximum yearly income of $53,100.00 as of January 2019. Therefore, an eligible taxpayer who receives an annual salary of $100,000.00 will receive the same maximum payment every two weeks of an eligible taxpayer who receives an annual salary of $65,000.00.
Parental benefits are available to people who are away from work because they are caring for a newborn or newly adopted child. The individual can receive up to 35 weeks of benefits. The person receiving maternity benefits may also be allowed parental benefits. For instance, if a mother has claimed the maximum 25 weeks of maternity benefits, she can also claim an additional 35 weeks for the care of her newborn.
EI benefits are taxable and these federal, provincial or territorial taxes are automatically deducted from your benefits. A T4E slip is issued to individuals who have received maternity or paternal befits during the past tax year, detailing benefits received, and taxes paid. The amounts of benefits paid on box 14 of the T4E slip can be declared on line 119 of your Income Tax and Benefit return. The amount of tax paid on benefits on box 22 can be added to line 437 of your tax return, in which the amount lowers your taxes due.
These employment benefits are available to taxpayers who have insurable employment. If the taxpayer is employed, the employer will deduct EI premiums from the taxpayer’s wages or salary. For self-employed taxpayers who qualify, EI registration is required to apply for these benefits. Furthermore residents of Quebec must apply to the Quebec Parental Insurance Plan (QPIP) in lieu of maternity and parental benefits available through Employment Insurance.
Applying for Maternal and Paternal Benefits
To maximize payments, eligible taxpayers can apply for maternal benefits either before birth or as soon as possible to the date of birth, since maternity benefits must end 17 weeks after the week of birth. Following this time, parental benefits may begin.
As of March 17, 2019, eligible taxpayers can receive extra weeks of parental benefits through the new Parental Sharing Benefit. Parents can split their leave for up to 40 weeks with neither parent taking more than 35 weeks or 69 weeks with neither parent taking more than 61 weeks, for the respective standard or extended options.
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This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.