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How Payroll Deductions Work in Canada: CPP, EI and Income Tax

Updated

Between your gross pay and the amount deposited in your account, an employer takes off income tax, Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums, plus any optional deductions you have agreed to, such as group benefits or pension contributions. This guide explains each deduction from the employee’s side: what it is, how much it is this year, and when it stops. It is part of the income calculators; to turn a salary into take-home pay, the salary after tax calculator does the arithmetic.

The mandatory deductions

DeductionWhat it pays forWho else pays
Income tax (federal and provincial)Government programsEmployee only
CPP contributions (QPP in Quebec)Your CPP retirement pension, and disability and survivor benefitsYour employer contributes an equal amount
EI premiumsEI benefits if you lose your job, are sick or take parental leaveYour employer pays 1.4 times your premium

Your employer withholds these amounts and sends them to the Canada Revenue Agency.

CPP contributions

In 2026, employees contribute 5.95% of their pensionable earnings between the basic exemption of $3,500 and the year’s maximum pensionable earnings of $74,600, up to a maximum of $4,230.45 for the year. On earnings above that, up to $85,000, a second additional contribution (CPP2) of 4% applies, up to $416.00. Your employer matches both.

Once your contributions for the year reach the maximum, CPP deductions stop until January, so higher earners see larger paycheques late in the year. Rates and their history are on the CPP contribution rates page, and CPP2 is explained in CPP2 contributions. Self-employed people pay both the employee and employer shares; see CPP for the self-employed.

EI premiums

In 2026, the employee premium is 1.63% of insurable earnings up to the maximum insurable earnings of $68,900, for a maximum premium of $1,123.07. Like CPP, EI deductions stop for the rest of the year once you reach the maximum.

Quebec residents pay a reduced EI premium (1.3%) because Quebec’s own parental insurance plan (QPIP), which they also contribute to, pays maternity and parental benefits there. What EI pays and who qualifies is covered in the EI guides.

Income tax withholding

Income tax isn’t a flat percentage of each cheque. Your employer estimates your yearly income from your pay, applies the federal and provincial tax brackets and the credits you claimed, and withholds a share each pay period, following the CRA’s payroll formulas. The current federal and provincial rates are on the tax brackets page, and the withholding tax calculator shows how withholding works on other payments.

The TD1 forms

When you start a job, you fill in federal and provincial TD1 forms (in Quebec, Revenu Québec’s TP-1015.3-V instead of the provincial form). They tell your employer which tax credits to account for, such as the basic personal amount, the age amount or the disability amount, and they are where you can ask for extra tax to be withheld if you have other income. The TD1 guide walks through the forms line by line.

Optional deductions

Other amounts come off a paycheque only when you have agreed to them or they are part of your job’s terms:

  • Group RRSP or pension contributions. Contributions to a registered pension plan, and group RRSP contributions made through payroll, can reduce the income tax withheld from the same cheque. How employer matching works is explained in how employer RRSP matching works.
  • Group benefits premiums for health, dental, life or disability coverage, if employees share the cost.
  • Union dues, set by the collective agreement.
  • Other authorized deductions, such as a share purchase plan or charitable giving.

Provincial employment standards limit the deductions an employer can make without your written authorization.

Reading the deductions on your pay stub

A pay stub lists gross pay, each deduction for the period, net pay, and usually year-to-date totals. The year-to-date CPP and EI figures show how close you are to the yearly maximums. How to read a pay stub explains every line, and why a paycheque can change from one week to the next covers the common causes of a different-looking cheque.

Two jobs, or a change of job during the year

Each employer deducts CPP and EI on its own pay without knowing what another employer has deducted, so people with two jobs, or who change jobs during the year, can contribute more than the yearly maximum. The excess is refunded when you file your tax return. Income tax can go the other way: each employer withholds as if its pay were your only income, which can leave a balance owing at tax time, unless you ask one employer for extra withholding on your TD1.

What your employer pays on top

Your employer’s CPP and EI contributions, and in some provinces employer health taxes and workers’ compensation premiums, are costs on top of your salary rather than deductions from it. The payroll tax calculator shows the employer’s share. When comparing job offers, the parts of a package that do reach you, such as benefits and pension matching, are covered in the total compensation guide.

Sources

The figures and rules on this page come from these sources, last checked against them between September 5, 2026 and October 1, 2026. How we check facts.