Seniors Over 74 Get a Raise This Month

Walter Harder

The government has promised to increase Old Age Security by 10% for seniors over age 74, but that increase won’t kick in until the July 2022 payments.  However, this month, a one-time payment of $500 (with zero withholding)  will be made to seniors who meet the following criteria:

1. They are eligible to receive OAS for the month of June 2021.
2. They were born before June 30, 1947 (i.e. they were at least 74 on July 1).

The taxable $500 payments are expected to be made this week (week of August 16, 2021).  Seniors receiving OAS via direct deposit will see the money deposited directly into their accounts, and those receiving their OAS by cheque will see the additional payment made by cheque this week.

The income tax consequences of this payment (as well as the 10% bump next July) are as follows:

1. Since the payment is considered to be Old Age Security, it is taxable and will increase the seniors’ tax bill for 2021.However, low-income seniors who are not currently taxable may have no income tax consequences of this payment.
2. Low-income seniors who are receiving the Guaranteed Income Supplement will not see a reduction in their GIS as a result of the additional OAS because OAS is not part of the income test for GIS.
3. Higher-income seniors may see an increase in their OAS clawback starting in July 2022.This is because the additional $500 increases net income (which determines the amount of the clawback) and because the OAS amount increases, the maximum clawback increases.See the following examples:

Example 1: New clawback as a result of $500 additional payment

Millie, age 76, receives full OAS and has a net income of $79,800 for 2021 (before the additional $500 payment).  Because her income is below the clawback threshold of $79,845, she would not be required to repay OAS if she did not receive the additional $500 payment.  With the additional payment, her net income increases to $80,300 and she is required to pay 15% x ($80,300 - $79,845) = $68.25.  This means she gets to keep $431.75 of the $500 payment.

Example 2: Increased clawback as a result of the $500 additional payment

Trevor, age 77, receives full OAS and has net income of $130,000 for 2021 (before the additional $500 payment).  Because his income is so high, he is required to repay all of the $7,460.40 OAS he received.  With the additional payment, his income increases to $130,500, and his OAS receipt increases to $7,960.40.  With the additional payment his OAS clawback increases to ($130,500 - $79,845) x 15% = $7,598.25.  This means that he gets to keep $362.15 of the $500 additional payment.

Example 3: Full clawback of additional payment

Ingrid, age 78, receives full OAS and has net income of $140,000 for 2021 (before the additional $500 payment).  Because her income is so high, she is required to repay all of the $7,460.40 OAS she received.  With the additional payment, his income increases to $140,500, and his OAS receipt increases to $7,960.40.  With the additional payment his OAS clawback increases to ($140,500 - $79,845) x 15% = $9,098.25 but is limited to the full amount of the OAS received ($7,960.40).  This means that she gets to keep none of the $500 additional payment.