Looking at my first paycheque of the year, I feel the sting of Canada Pension Plan (CPP) and Employment Insurance (EI) deductions starting again. I don’t really mind contributing to my future income in the form of CPP, but calling EI “insurance” always irked me because I thought my income level made it nearly impossible for me to ever collect.
There are clawback provisions for any EI benefits you receive over and above paying normal income taxes on the benefits. I had assumed that if my year’s pay was too much above $60,000, any EI benefits would be clawed back anyway.
It turns out that there is an exemption for anyone who hasn’t collected any EI benefits in the preceding 10 taxation years. So, while I don’t expect to be involuntarily unemployed, in principle I could collect EI benefits for a while and not have them entirely taxed back. This could only happen once every 11 years, but at least this insurance has modest value to me. So, instead of viewing EI deductions entirely as a tax, I now see them as mostly tax and a little bit of insurance.
Don’t get the wrong idea about my view of EI. I don’t mind paying into a fund that helps people who lose their jobs. And I think it makes sense to claw back benefits from high-income earners. I just question whether we should call it insurance or just another tax. At least the first year you collect EI you aren’t subject to clawback.
Yes, EI is a great misnomer, it's also a tax/seasonal industry subsidization/parental leave funding thing. And it's funny that the name was changed for Unemployment Insurance to Employment insurance, that really cleared things up.
ReplyDeleteI remember paying it when I was a high school and university student and being annoyed that I couldn't collect because I was a student. Now my kids are going through the same thing.
@Big Cajun Man: why didn't you collect EI? Severance?
It would probably be less annoying if they just took EI as part of the general income tax rate instead of emphasizing it by putting it on a T4 as its own line item. Since the EI rules vary from province to province and even within some provinces, it would probably be better not to make it so obvious how much we are contributing when we don't expect to be able to ever claim anything.
ReplyDeleteThe EI rules are discriminatory against the middle class. My argument is, after working my whole life and collecting a private company pension and CPP at age 60 (I'm 62), I went out and worked and qualified for EI. I was unemployed for about 9 months and collected the maximum, say $18,000. Because of my earnings, including my pensions, I paid at the marginal tax of 46.2% and then they clawed back 30% of the EI paid, with EI deductions of $856 at source, this leaves a net benefit of only $2,448 or 13.6% of the EI payments! If your auto insurance company told you that they could only pay you 13.6% of your insurance claim BECAUSE YOU MADE TOO MUCH MONEY, what would you tell them? EI for the middle class wage earner is a scam and should be changed to reflect the fact that it should be an insurance program and not a social benefit that can be cut by the government. I'm a bit embarrassed as I'm a professional CPA and should have alerted myself to this in advance of receiving any EI benefits.
ReplyDeleteAnonymous: I don't have any particular problem with how EI works. I just don't think it should be called "insurance" when it's really just a social program. The "premiums" collected are really just taxes. Once you let go of the idea that it's insurance, the anger that it's "discriminatory" and a "scam" fades.
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