Payroll Deductions in Canada: CPP, EI & Income Tax Explained

Every time a Canadian employee receives a paycheque, three mandatory deductions come off the top: Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and income tax. As an employer, you collect these deductions from employees and add your own employer contributions — then remit the combined amount to the CRA on a regular schedule.

Get this wrong and the CRA charges penalties from 3% to 20% of the missed amount — plus interest compounded daily. This guide explains how each deduction works, the 2026 rates, and how to calculate a correct paycheque.

Canada Pension Plan (CPP) Contributions

CPP is a mandatory retirement savings program funded equally by employees and employers. As of 2024, a second CPP tier (CPP2) was introduced for higher earners.

2026 CPP Rates and Limits

Component	Employee Rate	Employer Rate	Annual Maximum
CPP1 (base)	5.95%	5.95%	~$4,034 (employee)
CPP2 (enhanced)	4.00%	4.00%	~$396 (employee)

CPP contributions apply to employment earnings between the basic exemption ($3,500/year) and the first ceiling (~$71,300 for CPP1). CPP2 applies to earnings between the first and second ceiling. Employees who have already reached their annual maximum stop contributing for the rest of the year.

Quebec exception: Quebec employees contribute to the Québec Pension Plan (QPP / RRQ) instead of CPP. The QPP is administered by Revenu Québec, not the CRA. Rates differ slightly from CPP.

Employment Insurance (EI) Premiums

EI provides temporary income replacement for Canadians who lose their job, become ill, or take parental leave. Both employees and employers pay premiums — but the employer pays 1.4 times the employee rate.

2026 EI Rates

Who	Rate	Maximum Annual Insurable Earnings	Maximum Premium
Employee	1.66%	~$65,700	~$1,091
Employer	2.32% (×1.4)	Same	~$1,527

Quebec: Quebec has its own parental insurance plan (QPIP / RQAP). Quebec employees pay a lower federal EI rate but also contribute to QPIP separately. Employers must remit both.

Income Tax Withholding

Unlike CPP and EI, income tax withholding has no fixed rate — it varies by the employee's total expected annual income, province, and personal tax credits claimed on their TD1 form.

The CRA publishes payroll deductions tables (T4032) each year. Most payroll software applies these tables automatically. Key factors:

• Federal basic personal amount: $16,129 (2026) — income below this is not taxed federally
• Provincial basic personal amount: Varies by province
• TD1 form: Employee completes this at hiring to claim applicable credits (basic personal, spousal, disability, tuition transfer, etc.)
• Bonus payments: Use the "bonus method" or flat 22% withholding (over $5,000)

Remittance Deadlines

Collected deductions and employer contributions must be remitted to the CRA on a schedule based on your average monthly withholding amount (AMWA) from two years ago:

Remitter Type	AMWA	Deadline
Quarterly (new/small employers)	<$1,000	15th of April, July, October, January
Regular	<$25,000	15th of following month
Accelerated Threshold 1	$25,000–$99,999	25th of same month + 10th of next
Accelerated Threshold 2	≥$100,000	3 business days after each payday

Late remittance penalties start at 3% for 1–3 days late and jump to 10% for 4–7 days. Beyond 7 days: 20% if the failure was knowing or gross negligence. These apply to the full missed amount, not just the tax portion.

Year-End: T4 Slips

By the last day of February each year, employers must issue T4 slips to all employees and file the T4 Summary with the CRA. The T4 reports total employment income and all deductions for the previous calendar year. Quebec employers also issue RL-1 slips to Revenu Québec.

Our payroll management service handles all of this — including CPP/EI/tax calculations, CRA remittances on schedule, and T4/RL-1 filing by the deadline.