Employment Insurance provides a critical financial safety net for Canadians who lose work through no fault of their own — but the tax side of EI catches many people off guard. Whether you received regular EI benefits after a layoff, special benefits during parental leave, or you are self-employed and considering voluntary registration, understanding how EI interacts with your annual tax return can save you from an unpleasant bill in April. Here is what you need to know for the 2025 tax year.
Every dollar of Employment Insurance benefits you receive is considered taxable income in the year you receive it. There are no partial exemptions, no thresholds below which EI becomes tax-free, and no special treatment based on the type of claim. Regular EI, maternity and parental benefits, sickness benefits, compassionate care benefits, and family caregiver benefits are all included in your income for the year.
Service Canada reports your EI income on a T4E Statement of Employment Insurance and Other Benefits slip, which is issued each February for the prior calendar year. The T4E shows three key figures: the total EI benefits you received, the federal income tax that was withheld at source, and any EI repayment amounts that were already recovered from your payments during the year.
When you file your T1 personal income tax return, you enter your EI benefits on line 11900. The amount flows into your net income calculation and is taxed at your marginal rate alongside all other income sources. This is where many Canadians encounter a problem.
Service Canada withholds federal income tax from your EI payments, but the withholding calculation is based solely on your projected annual EI income. It does not account for employment income you earned earlier in the year before your claim started, income from a spouse or partner, RRSP withdrawals, rental income, freelance revenue, or any other source.
If you returned to work partway through the year and collected both EI and employment income, your total income for the year is considerably higher than what Service Canada estimated when it set your withholding rate. The result is a tax balance owing at filing — sometimes a significant one, depending on your income bracket.
You have two practical options to address this gap. First, you can contact Service Canada directly and request that additional federal income tax be withheld from each remaining EI payment. This is the simplest approach and spreads the impact over the remainder of your claim. Second, if your situation changes after your claim has ended, you can make income tax instalment payments to the CRA before your filing deadline to reduce or eliminate any interest charges on a balance owing.
Regular EI claimants with higher annual incomes face an additional obligation that surprises many people: the EI benefit repayment rule. If your net income on line 23600 of your T1 return exceeds $79,000 in 2025 and you received regular EI benefits (not sickness benefits, special benefits, or family caregiver benefits), you must repay a portion of those benefits.
The repayment is calculated as 30% of the lesser of your total EI benefits received or the amount by which your net income exceeds $79,000.
To illustrate: suppose your net income for 2025 is $90,000 and you received $8,000 in regular EI benefits earlier in the year. Your income exceeds the threshold by $11,000. The lesser of $8,000 and $11,000 is $8,000. Your repayment is $8,000 × 30% = $2,400. That amount is added to your tax bill at filing.
This rule catches many professionals and managers who were laid off, collected EI during a gap in employment, and then secured a well-paying position before year-end. The combination of a strong final income and EI benefits received earlier can push net income well above the threshold. If you anticipate this situation, factoring the potential repayment into your tax planning before December 31 gives you the most options.
On the contribution side, the EI premiums deducted from your employment paycheque generate a 15% federal non-refundable tax credit — the same rate that applies to CPP contributions and other Schedule 1 credits.
For 2025, the employee EI premium rate is 1.64% on insurable earnings up to a maximum insurable earnings threshold of $65,700. The maximum annual employee premium is therefore $1,077.48. Quebec residents pay a lower rate due to the provincial parental insurance plan, but the federal credit calculation follows the same structure.
If you worked for multiple employers during the year and each employer deducted EI premiums without knowing what the other had already withheld, your total premiums paid may exceed the annual maximum. In that case, you can claim the overpayment as a refund directly on your T1 return. The CRA will apply the overpayment against any balance owing or issue a refund.
Self-employed individuals are not automatically covered by Employment Insurance, but they can voluntarily opt in through Service Canada. Registration gives access to special benefits including maternity, parental, sickness, compassionate care, and family caregiver benefits — the same benefits available to employed workers — after a minimum of 12 months of registration.
The trade-off is that self-employed registrants must pay both the employee and employer portions of EI premiums on their self-employment income, which is roughly double the standard employee rate. The premiums paid still generate a federal tax credit, but the employer-side portion is not deductible as a business expense in the same way.
For sole proprietors, consultants, and incorporated business owners who draw income personally, voluntary EI registration can be worthwhile — particularly for those planning a family. The 12-month waiting period means registering well in advance of when you anticipate needing benefits.
To avoid surprises at tax time, keep a few habits in place while receiving or expecting EI benefits. Track all income sources through the year so you can estimate your total net income before December 31. Request additional withholding from Service Canada early in your claim if you expect other significant income for the year. Set aside a portion of any EI payments received — particularly if you are a higher earner who may be subject to the repayment rule. And when your T4E arrives in February, cross-reference the figures against your own records before filing.
At Swift Accounting Calgary, we work with clients through layoffs, parental leaves, and employment transitions every year. The intersection of EI and personal taxes requires careful attention, especially when multiple income sources are involved or when net income is near the repayment threshold.
If you would like a review of your personal tax situation before filing, or if you want to plan ahead for an expected EI claim, contact our team — we are here to help you stay ahead of your obligations and avoid costly surprises.
All types of EI benefits are fully taxable income in Canada, including regular benefits, sickness benefits, maternity and parental benefits, compassionate care benefits, and family caregiver benefits. All amounts are reported on your T4E slip and entered on line 11900 of your T1 return. There is no type of EI benefit that is tax-exempt.
This is a common situation, particularly if you had other income during the year. Service Canada only withholds tax based on your projected EI income — it has no visibility into your employment earnings, investment income, or other sources. If you are still receiving EI payments, contact Service Canada to request additional tax withholding. If your claim has ended, consider making an instalment payment to the CRA before your filing deadline to reduce or eliminate interest charges on the balance owing.
No. The repayment rule applies only to regular EI benefits. If all EI benefits you received in 2025 were sickness, maternity, parental, compassionate care, or family caregiver benefits, you are not subject to the repayment rule regardless of your net income. However, if you received a mix of regular and special benefits, the regular benefit portion is subject to the 30% repayment calculation once your net income exceeds $79,000.
The employee-equivalent portion of your EI premiums generates a 15% federal non-refundable tax credit on your personal return, the same as for an employee. The employer-equivalent portion you pay as a self-employed registrant is not deductible as a business expense on Schedule T2125. The credit reduces your federal tax payable but does not reduce your net income. Speak with a qualified tax professional — the team at Swift Accounting is glad to help you model the net cost of voluntary EI registration against the potential benefit value for your specific circumstances.
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