How Payroll Deductions Work in Canada: CPP, EI & Income Tax (2026)

Every Canadian employee’s pay is reduced by four mandatory deductions before it reaches your bank account: federal income tax, provincial income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums. Understanding what each deduction is, where the money goes, and what your employer pays on top of your salary gives you a clearer picture of your total compensation.

The four mandatory payroll deductions

Your employer remits all four amounts to the Canada Revenue Agency (CRA) on your behalf. You never pay CRA directly from each paycheque — the withholding is done through the employer.

CPP contributions (Canada Pension Plan)

CPP contributions fund your future CPP retirement benefit, as well as CPP disability and survivor benefits if you need them. In 2026, there are two CPP tiers.

CPP1 — the primary contribution

CPP1 applies to each dollar of employment income between $3,500 and $71,300. The basic exemption means the first $3,500 of earnings each year is not subject to CPP — this is built into the deduction tables automatically. Once you reach the $4,034.10 annual maximum, CPP1 deductions stop for the rest of the calendar year. Employees earning at the YMPE typically reach the maximum around September or October.

CPP2 — the second additional CPP

Introduced in 2024 as part of the CPP enhancement, CPP2 applies to earnings above the YMPE:

For detailed rate history and how CPP enhancement affects your future benefit, see our CPP contribution rates guide.

CPP for self-employed Canadians

Self-employed individuals pay both the employee and employer share of CPP — effectively 11.90% on CPP1 earnings — because they have no employer to pay the matching portion. The employer-equivalent share is deductible for income tax purposes, partially offsetting the cost. See CPP for the self-employed.

EI premiums (Employment Insurance)

EI premiums fund your access to Employment Insurance benefits during job loss, illness, maternity and parental leave, and caregiving. In 2026:

Once you reach the $1,123.07 annual maximum, EI deductions stop for the remainder of the calendar year — the same mechanism as CPP. Most employees earning above $68,900 reach the EI maximum in November or December.

Quebec EI is different

Quebec residents pay a lower federal EI rate because they contribute separately to the Quebec Parental Insurance Plan (QPIP), which covers maternity, paternity, adoption, and parental leave. The federal EI benefit still covers job loss and illness for Quebec residents, but the QPIP replaces the parental portion. Both employee and employer rates are lower in Quebec to account for this.

Income tax withholding

Income tax is not a fixed percentage — it is calculated on your estimated annual taxable income using Canada’s progressive tax brackets, then withheld proportionally from each paycheque. Your employer uses CRA’s payroll deduction tables or the online calculator to determine the correct withholding per pay period.

2026 federal income tax brackets

The Basic Personal Amount (BPA) — approximately $16,129 in 2026 — is a non-refundable tax credit that effectively means the first ~$16,129 of income is tax-free federally. This is factored into the withholding tables automatically for most employees.

Each province and territory has its own tax brackets and basic personal amount. Alberta has the lowest overall provincial rates; Quebec and Nova Scotia are among the highest. Your take-home pay can differ by $3,000–$6,000 per year for the same salary depending on province of residence.

The TD1 form

When you start a new job, your employer gives you a federal TD1 form and a provincial TD1 form. These forms identify your personal tax credits so the employer can withhold the correct amount of income tax. Common credits declared:

• Basic personal amount — every employee qualifies automatically
• Age amount — if you are 65 or older
• Disability amount — if you have an approved disability tax credit
• Pension income amount — if you receive eligible pension income
• Caregiver amount — if you support a dependent with an impairment

If you have additional income sources (rental income, self-employment, investment income), you can request extra withholding on your TD1 to avoid owing a balance at tax time. Update your TD1 whenever your personal situation changes — a marriage, a dependent, or starting a second job can all affect optimal withholding.

Your employer’s share: the invisible cost

For every employee paycheque, your employer pays its own mandatory contributions on top of your salary:

For an employee earning $70,000, the true cost to the employer is approximately $76,000 once mandatory contributions are included. This is why employment agencies, consultants, and contractors negotiating rates often gross up their hourly or daily rate to account for self-funding CPP both sides and losing EI coverage.

Optional payroll deductions

Beyond the four mandatory deductions, many employees have additional voluntary deductions:

Group RRSP contributions through payroll are particularly effective: if your marginal tax rate is 30%, a $300/period RRSP contribution reduces your take-home pay by only approximately $210 — because the tax savings are applied immediately each period rather than returned as a refund in April. See our biweekly paycheque calculator for an estimate of how RRSP contributions affect your specific paycheque.

How to read your Canadian pay stub

Every Canadian pay stub must include at minimum:

1. Gross earnings — your total pay before any deductions
2. Federal income tax — amount withheld this period
3. Provincial income tax — amount withheld this period
4. CPP contribution — your employee portion this period
5. EI premium — your employee portion this period
6. Net pay — the amount deposited into your account

Most pay stubs also include year-to-date (YTD) totals, which track how much you have contributed to CPP and EI so far this year. Watch these: when the YTD CPP column reaches $4,034.10 and the YTD EI column reaches $1,123.07, those deductions stop. Your take-home pay will be noticeably higher for the remaining pay periods of the year.

Some employers show the employer’s matching CPP and EI contributions as a separate line — this is informational only and is not deducted from your pay.

FAQ

Why is my take-home pay much lower than my salary?

The gap between gross and net pay surprises many Canadians. For a $70,000 salary in Ontario, total annual deductions typically amount to approximately $17,000–$19,000, leaving roughly $51,000–$53,000 in take-home pay (about 73–76 cents on the dollar). Use our biweekly paycheque calculator for a province-specific breakdown of exactly where each dollar goes.

Can my employer deduct other amounts from my pay without my consent?

No. Beyond the four mandatory deductions and any voluntary deductions you have explicitly authorized in writing (benefits, RRSP, union dues), your employer cannot deduct from your pay without your consent. Unauthorized deductions for cash shortages, breakage, or errors are prohibited under provincial employment standards legislation in every province.

I have two jobs. Will I overpay CPP and EI?

Quite possibly. Each employer deducts CPP and EI independently, not knowing about your other employment income. If your combined earnings trigger deductions above the annual maximum at one or both employers, you will have overpaid. You can claim the overpayment on your income tax return: line 44800 for excess CPP contributions and line 45000 for excess EI premiums. You receive a refund for the overpaid amount.

Having two jobs also commonly results in insufficient income tax withholding — because each employer withholds based only on your salary with them, not your combined income. Consider submitting a revised TD1 to one employer requesting additional withholding to avoid a balance owing at tax time.

What happens to my CPP contributions when I retire?

Your CPP contributions accumulate a pension entitlement throughout your working years. The amount you receive at retirement depends on how much you contributed and for how long. You can take CPP as early as age 60 (with a permanent reduction) or defer it to age 70 (with a permanent increase). See our CPP guide and CPP at 60 vs. 65 vs. 70 comparison for more on timing decisions.

Do payroll deductions differ for part-time employees?

The rates are the same — CPP at 5.95%, EI at 1.63%, income tax at your marginal rate — but the amounts deducted are lower because your earnings are lower. Part-time employees still have the $3,500 CPP basic exemption applied. If you earn less than $3,500 in the year, no CPP is deducted at all.