Will your family’s income be less in 2021 than it was in 2020? There are many reasons your income may have dropped. Employment income may be less, pension income may have dropped, investment income may be less.
Often this happens to older taxpayers, but some of these topics may affect those under 65 too.
If so, there are a few organizations you may want to notify to increase your income or cash flow or to reduce your expenses.
Manitoba Health sends out letters every April to let Manitobans who have already enrolled in the provincial pharmacare plan know what their deductible is for the current year: April 1 2021 to March 31 2022.
The Pharmacare deductible is the amount your family will pay for eligible prescriptions before Manitoba Health will pay for them until March 31 2022.
This annual deductible is based on your family’s income of 2019. If your family’s income decreased by more than 10% from 2019 to 2021, you can request the deducible be recalculated based on your estimated 2021 income.
You can obtain the form (projected income worksheet) on the Manitoba Health website, or call our office and we can help you.
This form does need to be completed before March 31 2022. And if you have already spent quite a bit on medications that exceeds the new deductible, you may get a refund from Pharmacare.
Pharmacare Instalment Payment Program
Did you know that you can pay your annual pharmacare deductible with monthly payments? If your monthly drug costs are more than 20% of your average monthly adjusted family income, you may qualify. Check out Pharmacare’s website, or give us a call and we can help you.
Guaranteed Income Supplement
If you are 65+ and if your pension income or employment income has dropped substantially, you can request the GIS be based on your current 2021 income instead of your 2020 income.
The GIS is recalculated each year for the July 2021 to June 2022 period and is based on your previous year or 2020 taxable income.
If you normally receive GIS, and your income from employment or pension income has declined, you can request GIS recalculate your income based on your 2021 income instead of your 2020 income. If GIS agrees with your application, they will back date the new amount of GIS to July 2021.
If you have never applied for GIS and you think based on your 2021 income you may qualify, it is worth applying for. Even if you do not qualify now, you might in the future, and at least Service Canada will review it each year once you have applied. If you are not sure, give us a call.
GIS and employed
Guaranteed Income Supplement has changed in the past couple of years and allow low income seniors to earn more from employment or self- employment income and not have the GIS reduced quite as much. It’s possible you didn’t think you qualified for GIS because you were still working, but maybe now you will.
If you are 65+ and without your employment income, your other income like pensions (excluding OAS) are under $18,000, and your employment or self-employment income is under $15,000, you may qualify for the GIS. If you are not sure, give us a call.
If you paid more than $3,000 for your 2020 taxes that were due April 30 2021, you may be required to make installment payments for your 2021 taxes. Canada Revenue Agency doesn’t want to wait until next April 2022 for you to pay what you may owe for 2021.
What are your options?
If your income will not be the same and you know for sure you will not owe more than $3,000 in taxes for 2021 you can decide not to pay the installment amount requested. If you are wrong and you do owe $3,000 or more, then CRA will add interest to the amounts you did not pay in time. Their interest rate is 6% annually; so, if you were required to pay $1,500 September 15 and $1,500 December 15 and you didn’t, the added interest will be about $90.
If you have never experienced installment payments before, you may be required to pay September 15 and December 15 2021 for the 2021 tax year. Plus, you will be required to pay 25% of your 2020 taxes owing March 15 and June 15. Your 2022 quarterly installment for next September and December will be recalculated after you file your 2021 taxes.
To avoid quarterly installments, you can also increase the amount of tax deducted on your sources of income to bring your taxes payable under $3,000. I have assisted clients have just a bit more tax deducted from CPP or OAS so they get their amount owing under $3,000 each year.
Old Age Security Reduction
Occasionally, your OAS will have additional tax withheld if your income was high in one year (more than $80,000). Normally, it’s a one-time event because of a reported capital gain from the sale of a cottage or farmland. If the income will not be repeatedly high, then we can request this extra tax not be withheld.
A form (T1213OAS) is completed listing your expected income for 2021 and the credits you will claim and the tax you will have deducted from your various source and any tax installments you may have made already in 2021. CRA will complete an estimated 2021 tax return; and if you will not have any taxes payable they will reduce or eliminate the extra tax they are withholding until June 2022. This can increase your cashflow between now and June 2022.
If you do not complete this form, or CRA does not accept your request, and too much tax was deducted, you do get it back in the form of a tax refund.
If any of the above items trigger some questions, please give our office a call and we’ll see how we can help you.
Anni Markmann is a Personal Income Tax Professional and Certified Financial Planner; living, working, and volunteering in our community. Contact Ste Anne Tax Service at 204.422.6631 or 36 Dawson Road in Ste Anne (near Co-op) or email@example.com