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Canadian payroll involves a distinct set of mandatory deductions regulated by the Canada Revenue Agency (CRA). Unlike US payroll, Canadian employees contribute to the Canada Pension Plan (CPP) and Employment Insurance (EI) — programs with specific annual maximums that differ from US FICA. Federal and provincial income taxes add further layers of calculation. Whether you're an employer running payroll, an employee verifying your paycheque, or a business owner understanding payroll obligations, this guide explains every component of a Canadian payroll calculation.
Key Takeaways
- CPP1: 5.95% on earnings above $3,500 up to $68,500 — both employee and employer pay
- EI: 1.64% employee (up to $65,700); employer pays 1.4× employee premium
- Federal tax: 15–33% progressive brackets; provincial tax adds 13–25.75% more
- Net pay = Gross − CPP − EI − Federal tax − Provincial tax
- T4 slips and payroll remittances due February 28; ROE within 5 days of separation
Canada Pension Plan (CPP) Contributions
CPP is Canada's mandatory retirement savings program, funded by employee and employer contributions. In 2024–2025, CPP has two tiers:
CPP1 (base contributions): • Employee contribution rate: 5.95% • Employer contribution rate: 5.95% (matching) • Annual maximum pensionable earnings: $68,500 (2024) • Basic personal exemption: $3,500 • Maximum employee contribution: ($68,500 − $3,500) × 5.95% = $3,867.50
CPP2 (additional contributions introduced in 2024): • Employee rate: 4.0% • Employer rate: 4.0% • Applies on earnings between $68,500 and $73,200 (2024) • Maximum CPP2 employee contribution: ($73,200 − $68,500) × 4.0% = $188
CPP calculation per pay period: 1. Determine pensionable earnings for the period 2. Subtract the per-period basic exemption ($3,500 ÷ 26 biweekly = $134.62) 3. Multiply by 5.95% for CPP1 4. Add CPP2 if applicable 5. Ensure year-to-date total doesn't exceed annual maximum
- CPP1 rate: 5.95% employee + 5.95% employer on earnings up to $68,500
- CPP2 rate: 4.0% on earnings $68,500–$73,200 (second ceiling since 2024)
- Basic CPP exemption: $3,500 annually ($134.62/biweekly pay period)
- Maximum CPP1 employee contribution: $3,867.50 (2024)
Employment Insurance (EI) Premiums
EI provides temporary income support for unemployed Canadians, maternity/parental leave, and illness benefits.
EI premium rates for 2025: • Employee rate: 1.64% of insurable earnings • Employer rate: 1.4× employee premium (2.296%) • Maximum insurable earnings: $65,700 • Maximum employee premium: $65,700 × 1.64% = $1,077.48 • Maximum employer premium: $1,077.48 × 1.4 = $1,508.47
EI calculation per pay period: 1. Determine insurable earnings (most employment income qualifies) 2. Multiply by 1.64% 3. Stop when maximum annual premium is reached
Quebec residents use a lower EI rate (1.31% in 2025) because Quebec has its own parental insurance plan (QPIP) with separate premiums.
Self-employed Canadians can opt into EI voluntarily, paying both employee and employer portions.
- EI employee rate: 1.64% (2025) on insurable earnings up to $65,700
- Maximum employee EI: $1,077.48 per year
- Employer pays 1.4× employee premium = 2.296% (some exceptions for reduced rate plans)
- Quebec residents: lower EI rate (1.31%) because QPIP replaces some EI coverage
Federal Income Tax Withholding
Federal income tax is calculated using the CRA's progressive tax brackets applied to net income after deductions.
2025 federal tax brackets: • 15% on taxable income up to $57,375 • 20.5% on $57,375 to $114,750 • 26% on $114,750 to $158,519 • 29% on $158,519 to $220,000 • 33% on income over $220,000
Basic personal amount (2025): $16,129 — creates a non-refundable tax credit of $16,129 × 15% = $2,419.35 that reduces federal tax.
CRA payroll deduction tables: Employers use CRA's T4032 Payroll Deductions Tables (or online calculator at canada.ca) to look up the exact withholding amount based on: • Pay period type (weekly, biweekly, semi-monthly, monthly) • Claim code on TD1 federal form • Gross insurable earnings for the period
TD1 form: The equivalent of the US W-4, declaring personal tax credits. Default is Claim Code 1 (basic personal amount only).
- Federal rates: 15% / 20.5% / 26% / 29% / 33% on progressive income tiers
- Basic personal amount: $16,129 (2025) — reduces federal tax by ~$2,419
- TD1 form determines claim code — affects withholding amount
- Use CRA's T4032 tables or online Payroll Deductions Online Calculator
Provincial Income Tax
Each province and territory has its own income tax rates applied on top of federal tax. Residents pay the province where they live as of December 31.
2024 provincial top marginal rates: • British Columbia: 20.5% (provincial only) • Alberta: 15% • Saskatchewan: 14.5% • Manitoba: 17.4% • Ontario: 13.16% • Quebec: 25.75% • New Brunswick: 19.5% • Nova Scotia: 21% • Prince Edward Island: 18.75% • Newfoundland: 21.3%
Combined federal + provincial top rates range from Alberta's ~48% to Nova Scotia's ~54%.
Provincial TD1 form: Each province has its own TD1 form (e.g., TD1ON for Ontario) that captures provincial personal tax credits. The employer withholds provincial tax separately.
Quebec operates its own income tax system — employers file both federal (RL-1 slip) and provincial (Relevé 1) year-end reports and use Revenu Québec tables.
- Provincial tax rates vary widely — Alberta 15% to Nova Scotia 21% (top rate)
- Quebec has its own tax system — separate provincial TD1 and year-end slips
- Combined top marginal rate (federal + provincial): ~47–54% depending on province
- Separate provincial TD1 form captures provincial personal credits
Net Pay Calculation: Complete Example
Example: Ontario employee, biweekly pay, gross $2,500/period, TD1 Claim Code 1, single employer.
Gross pay: $2,500.00
CPP deduction: • Pensionable earnings: $2,500 − $134.62 exemption = $2,365.38 • CPP1: $2,365.38 × 5.95% = $140.74
EI deduction: • $2,500 × 1.64% = $41.00
Federal income tax: • Annualize: $2,500 × 26 = $65,000 (falls in 20.5% bracket) • Federal tax per period (from CRA table): approximately $382.00
Ontario provincial tax: • From CRA T4032 Ontario table: approximately $152.00
Total deductions: $140.74 + $41.00 + $382.00 + $152.00 = $715.74 Net pay: $2,500.00 − $715.74 = $1,784.26
The employer also remits: $140.74 CPP match + $57.40 EI employer premium = $198.14 additional employer cost (not deducted from employee).
- Net pay example: $2,500 biweekly gross → ~$1,784 net in Ontario
- Total deduction rate (tax + CPP + EI): ~28.6% of gross in this example
- Employer pays matching CPP (5.95%) + 1.4× EI — adds ~7.9% to payroll cost
- Use CRA's online Payroll Deductions Calculator for exact amounts by province
Year-End Canadian Payroll: T4 Slips and Remittances
Canadian employers have year-end reporting obligations:
T4 slip (Statement of Remuneration Paid): • Box 14: Employment income (total gross pay) • Box 16: Employee CPP contributions • Box 18: Employee EI premiums • Box 22: Income tax deducted • Box 52: CPP2 contributions (new) • Due to employees and CRA by February 28
Payroll remittances to CRA: • Frequency: new employer (monthly), regular (monthly by the 15th), accelerated (biweekly or weekly for large payrolls) • Each remittance includes: income tax withheld + employee CPP + employer CPP + employee EI + employer EI
ROE (Record of Employment): Filed when an employee leaves or has an interruption of earnings. Required for EI claims. Must be filed within 5 calendar days of the interruption.
T4 Summary: Totals all T4 slips. Filed with CRA by February 28 along with all individual T4 slips. Discrepancies between T4 Summary and remittances made trigger CRA review.
- T4 slip due February 28: includes income tax, CPP, EI boxes for employee's tax return
- CRA remittances include both employee and employer portions of CPP and EI
- ROE required within 5 days when employee leaves or has earnings interruption
- Accelerated remitters (large payrolls) pay CRA biweekly or weekly
Frequently Asked Questions
What is the difference between CPP and EI in Canada?
CPP (Canada Pension Plan) is a retirement savings program — contributions fund your future retirement pension, disability benefits, and survivor benefits. EI (Employment Insurance) provides temporary income when you lose your job, take parental leave, or are ill. Both are mandatory for most employed Canadians. CPP is based on 5.95% of earnings above $3,500; EI is 1.64% of all insurable earnings up to the annual maximum.
How do I calculate CPP contributions?
CPP1: (Gross pay per period − basic exemption per period) × 5.95%. The basic exemption is $3,500 per year, so per biweekly period: $3,500 ÷ 26 = $134.62. Example: $3,000 biweekly pay − $134.62 = $2,865.38 × 5.95% = $170.49 CPP per period. Stop when total annual CPP reaches the maximum ($3,867.50 for 2024).
What is a TD1 form in Canada?
The TD1 (Personal Tax Credits Return) is a form employees complete to declare their personal tax credits, which reduce income tax withholding. There are two TD1 forms: the federal TD1 and a provincial TD1 for each province. The basic personal amount is included for everyone (Claim Code 1); additional credits can be claimed for age, disability, caregiver amounts, and education. Similar to the US W-4 but credit-based rather than allowance-based.
How does Quebec payroll differ from other provinces?
Quebec has its own provincial income tax system administered by Revenu Québec (not CRA). Quebec residents pay lower federal EI rates (1.31% vs 1.64%) because they also pay into Quebec's Parental Insurance Plan (QPIP) for maternity/parental/paternity benefits. Employers in Quebec file RL-1 slips (provincial equivalent of T4) and use Revenu Québec's tables for provincial tax withholding, in addition to CRA remittances for federal taxes.
When do CPP and EI deductions stop for the year?
Deductions stop when the annual maximums are reached. For 2024: CPP1 maximum is $3,867.50, CPP2 maximum is $188, EI maximum is $1,049.12. High earners typically stop paying CPP by October–November and EI by December. Once the maximum is reached for the year, the employer must stop withholding even if the employee continues earning — failure to stop deducting is a payroll compliance error.
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