Hundreds of thousands of low-income seniors are penalized for working, warns the MEI

• Working low-income seniors can lose up to 50 cents on every dollar they earn through taxes and reduced benefits.

Montreal, January 27, 2026 – The current tax-and-benefit system disadvantages low-income seniors who work by penalizing them through the double-barreled impact of benefit clawbacks and steep taxation, finds a new MEI report.

“A growing number of seniors are working to make ends meet; the very least Ottawa could do is not punish them for doing so,” says Jason Dean, associate researcher at the MEI and author of the report. “A system that was designed to help those most in need is actually working against them due to poor design.”

Over 600,000 Canadian seniors fall below the poverty line, as defined by Statistics Canada’s low-income cut-offs before tax.

Low-income Canadian seniors receive three key federal income support programs, namely Old Age Security, for which most seniors are eligible, the Guaranteed Income Supplement, which only applies to low-income seniors, and the Canada Pension Plan, which depends on lifetime contributions.

Seniors with no income beyond Old Age Security qualify for the maximum Guaranteed Income Supplement of just over $13,000 annually. Beyond the first $5,000 in additional income, every dollar of income earned reduces GIS benefits by 50 cents. That’s before accounting for additional income tax payments, other credit reductions, and payroll taxes.

Data shows employment among GIS recipients increased by 56 per cent between 2014 and 2022, with an even greater increase among younger seniors (aged 65 to 69).

“The reality is that for every dollar working low-income seniors make, they lose up to 50 cents in benefits,” notes Mr. Dean. “These people do not have ample savings, but rather need to work to make ends meet.

“Ottawa shouldn’t make it harder for the growing number of such seniors.”

The researcher calculated the effect employment can have on low-income seniors in a variety of work situations, comparing the benefits lost due to employment as a proportion of employment revenue. This is called the “participation tax rate.”

A single senior below the age of 75 who worked minimum-wage jobs throughout their life and keeps working part-time for $13,048 per year, for instance, would stand to lose $2,279 through claw backs and taxes, representing a 17.5 per cent “participation tax.”

Meanwhile, a single senior in a similar situation, with no private pension or savings, earning a full-time modest wage of $20.50 per hour, would lose 50 cents through clawbacks and taxes for every dollar of employment income they earn.

“Some of these participation tax rates are similar to what’s being charged at the higher end of the income tax scale,” adds Mr. Dean. “Yet, the seniors working in these jobs aren’t wealthy.

“Small tweaks to the current programs could help remove some of the biggest problems low-income seniors face.”

The researcher recommends raising the Guaranteed Income Supplement’s earnings exemption from $5,000 to $30,000, aligning it with Statistics Canada’s low-income cut-offs in urban areas. Such a change would cost an estimated $544 million annually (a prudent estimate that does not account for the behavioural response of GIS recipients).

He also recommends reforming payroll taxes to benefit low-income seniors, such as removing their obligation to pay into Employment Insurance and switching Canada Pension Plan contributions to an easier to administer opt-in program after the age of 65.

“Whether deliberate or not, we are disincentivizing the poorest among us from improving their quality of life, and no Canadian should find that acceptable,” concludes Mr. Dean.

You can read the Economic Note here.

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The MEI is an independent public policy think tank with offices in Montreal, Ottawa, and Calgary. Through its publications, media appearances, and advisory services to policymakers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.

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