EMPLOYMENT INSURANCE PREMIUMS
Employment Insurance (EI) premiums are contributions made by employers and employees to fund Canada’s Employment Insurance program. This program provides temporary income support to individuals who are unemployed or on leave for specific reasons such as illness, parental leave, or compassionate care. The tax treatment of these premiums and related benefits varies based on the nature of the contributions and benefits.
Key Features of Employment Insurance Premiums
- Employer Contributions: Contributions made by employers to a group sickness or accident insurance plan, disability insurance plan, or supplementary unemployment benefit plan are generally not considered immediate taxable benefits for employees under Section 6(1)(a) of the Income Tax Act (ITA).
- Tax Treatment: Employer contributions become taxable when benefits are payable under the plan and exceed the loss of employment income. Contributions to group insurance plans that do not meet specific conditions may be considered taxable benefits.
- Post-2012 Rules: For contributions made after March 28, 2012, amounts paid by employers to group sickness or accident insurance plans are taxable benefits to employees unless benefits are payable periodically and only in the event of a loss of employment income.
Tax Treatment of Benefits Received
- Benefits received from group sickness or accident insurance plans are taxable as income if no immediate loss of employment income has occurred.
- Taxable benefits must be reported on employees' T4 slips, indicating the amounts as income received during the year.
- Benefits received under specific plans, such as supplementary unemployment benefit plans, are not considered income from employment and are reported separately under income lines specified in the Income Tax Act (e.g., Line 11900 or Line 82220).
Employer Responsibilities
- Employers must deduct EI premiums from employee paychecks and remit the combined employer and employee contributions to CRA.
- For taxable benefits, employers must report the amounts on T4 slips and ensure accurate classification of benefits under applicable income lines.
- Maintain records of contributions, taxable benefits, and employee claims to ensure compliance with CRA reporting requirements.
Special Rules for Group Sickness or Accident Insurance Plans
Employer contributions to group sickness or accident insurance plans are subject to specific tax rules introduced after March 28, 2012:
- If contributions are made to plans where benefits are not payable on a periodic basis or not directly tied to employment income loss, these contributions are considered taxable income for employees.
- Group plans must be designed to comply with CRA guidelines to ensure non-taxable treatment of contributions.
Tax Treatment for Employees
- Employees must report any taxable benefits received under group insurance or accident plans as income on their personal tax returns.
- If employees over-contribute to EI due to multiple employers, they can claim a refund on their annual tax return.
- Documentation, including T4 slips, is required to support deductions and claims related to taxable benefits.
Additional Resources
