Dissecting the Math Behind WCB’s Wage Replacement Formula
When an injured worker in Alberta qualifies for wage loss benefits from the Workers’ Compensation Board (WCB), they are often told they will receive “90% of net” earnings. This phrase can be confusing, especially when it comes to understanding how income tax and other deductions are handled. This article will break down exactly what “90% of net” means and how WCB calculates your benefit.
What Does “90% of Net” Mean?
When WCB Alberta says it pays 90% of your net earnings, they mean that your wage replacement benefit is based on an estimate of your take-home pay after standard payroll deductions. These deductions typically include:
- Income Tax: Based on standard federal and provincial tax rates
- Canada Pension Plan (CPP) Contributions: Calculated using standard CPP deduction rates
- Employment Insurance (EI) Premiums: Deducted based on standard EI contribution rates
WCB uses your gross pre-accident earnings as a starting point, applies standard deductions, and then calculates 90% of the resulting net amount to determine your benefit.
Example of “90% of Net” Calculation
Suppose your gross earnings before your injury were $1,000 per week. WCB might apply typical deductions as follows:
- Income Tax: $150
- CPP: $50
- EI: $20
This leaves you with net earnings of $780. WCB would then calculate 90% of this amount:
$780 x 90% = $702
Your weekly WCB benefit would be $702.
Does WCB Remit Source Deductions to the Government?
No, WCB Alberta does not remit income tax, CPP, or EI contributions to the Canada Revenue Agency (CRA) on your behalf. Unlike regular employment income, WCB benefits are non-taxable, meaning you do not need to report them as income when you file your taxes. You also will not receive a T4 slip for these benefits.
Because no actual remittances are made, you do not accumulate CPP contributions or EI insurable hours while on WCB benefits. This is an important distinction, especially for workers who may be approaching retirement age or who need EI eligibility in the future.
Why Use the “90% of Net” Formula?
The intention behind this formula is to approximate what your take-home pay would have been if you were working. The 90% figure is intended to account for the fact that, because your benefits are not taxed, you effectively receive a similar amount to your normal after-tax income while avoiding overpayment.
Key Takeaways
- WCB benefits are calculated as 90% of estimated net earnings, based on standard tax and deduction rates.
- WCB does not actually remit income tax, CPP, or EI contributions to CRA.
- WCB benefits are not taxable, and you do not accumulate CPP or EI credits while receiving them.
- The “90% of net” formula is designed to replicate your take-home pay as closely as possible.
Understanding this calculation can help you manage your finances while on WCB benefits and avoid surprises during tax season or when assessing your retirement contributions and EI eligibility.
