Canada Payroll Deductions Explained: CPP, EI and Tax

Key Takeaway: A Canadian paycheque is reduced by three main deductions: CPP contributions (5.95% of pensionable earnings in 2026), EI premiums (1.63% of insurable earnings), and federal and provincial income tax based on tax brackets and your TD1 credits. On a $60,000 salary in Ontario, the three together take roughly $12,270 a year, leaving about $47,730 before any other deductions.

Updated November 6, 2026: added the author's firsthand Voyageur's Footprint on a first paycheque with a signing bonus, and how the deductions changed after a move to Vancouver on more than double the salary.

What is deducted from a Canadian paycheque?

Three deductions come off almost every employee paycheque in Canada: Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and income tax, which is charged twice, once by the federal government and once by your province or territory. Your employer calculates all three for each pay period and sends them to the Canada Revenue Agency (CRA).

Some paycheques show more lines, such as union dues, a workplace pension (RPP), or group insurance. This guide covers the three statutory deductions every employee sees. Quebec employees are the main exception to the pattern: they pay into the Quebec Pension Plan (QPP) instead of CPP, pay a lower EI rate because Quebec runs its own parental insurance plan, and file a separate Quebec tax return.

How much CPP is deducted in 2026?

In 2026 you contribute 5.95% of your pensionable earnings between the $3,500 basic exemption and the $74,600 maximum pensionable earnings, and the most an employee can contribute for the year is $4,230.45 ^[1]. Your employer matches your CPP contribution dollar for dollar.

Two details explain most CPP questions:

• The first $3,500 is exempt. CPP applies only to earnings above the basic exemption, up to the yearly maximum ^[1].
• There is a second tier. Since 2024, earnings above the annual maximum pensionable earnings are subject to an additional CPP contribution, called CPP2, up to a higher second ceiling. CPP2 affects higher earners only ^[1].

At tax time, the base part of your CPP contribution (4.95%) earns a non-refundable tax credit, while the enhanced part (1.00%) is deducted from your income. Your paycheque does not show this split, but it changes your final tax bill slightly in your favour.

How much EI is deducted in 2026?

In 2026 the employee EI premium rate is 1.63% of insurable earnings, up to maximum insurable earnings of $68,900, so the most an employee pays for the year is $1,123.07 ^[2]. Your employer pays 1.4 times your premium.

Quebec employees pay a reduced EI rate of 1.30% in 2026, with a maximum premium of $895.70, because Quebec operates its own parental insurance plan ^[2]. EI premiums are a non-refundable tax credit at tax time. EI is also the deduction that funds Employment Insurance benefits if you lose your job.

How is income tax on a paycheque calculated?

Income tax is not a flat percentage of your pay. Your employer annualizes each paycheque, applies the federal and provincial tax brackets to that income, subtracts your non-refundable credits, and withholds one pay period's share of the result.

The 2026 federal brackets are 14% on the first $58,523, 20.5% up to $117,045, 26% up to $181,440, 29% up to $258,482, and 33% above that ^[3]. Every province and territory adds its own brackets on top; Ontario's 2026 rates start at 5.05% on the first $53,891 and rise to 13.16% at the top ^[3].

Two things reduce the tax withheld from each cheque:

• The basic personal amount. In 2026 the federal basic personal amount is up to $16,452, and Ontario's is $12,989. This is the income you earn tax-free, and it is the main credit on your TD1 forms ^[3].
• Your TD1 credits. When you start a job you fill in federal and provincial TD1 forms listing the credits you can claim. Payroll uses those forms, so an inaccurate TD1 means too much or too little tax comes off during the year. The difference is settled when you file your return, as explained in our tax filing guide.

The full set of brackets for every province is in our Canada tax brackets guide.

Worked example: a $60,000 salary in Ontario

Here is the full calculation for an employee earning $60,000 a year in Ontario, paid every two weeks (26 pay periods). It uses only the basic credits (basic personal amount, CPP, EI) to keep the example readable, so real withholding will differ a little.

Step 1: CPP. Pensionable earnings above the exemption: $60,000 - $3,500 = $56,500. Contribution: $56,500 x 5.95% = $3,361.75 per year, about $129.30 per paycheque ^[1].

Step 2: EI. $60,000 is below the $68,900 maximum, so the premium is $60,000 x 1.63% = $978.00 per year, about $37.62 per paycheque ^[2].

Step 3: Federal tax. First, the enhanced CPP portion ($56,500 x 1.00% = $565.00) is deducted from income, leaving taxable income of $59,435. Bracket tax: $58,523 x 14% = $8,193.22, plus $912 x 20.5% = $186.96, for $8,380.18. Credits at 14%: ($16,452 basic personal amount + $2,796.75 base CPP + $978.00 EI) = $20,226.75 x 14% = $2,831.75. Federal tax: $8,380.18 - $2,831.75 = $5,548.43 per year, about $213.40 per paycheque ^[3].

Step 4: Ontario tax. Taxable income is the same $59,435. Bracket tax: $53,891 x 5.05% = $2,721.50, plus $5,544 x 9.15% = $507.28, for $3,228.78. Credits at 5.05%: ($12,989 + $2,796.75 + $978.00) = $16,763.75 x 5.05% = $846.57. Ontario tax: $3,228.78 - $846.57 = $2,382.21 per year, about $91.62 per paycheque. Ontario tax at this level is below the surtax thresholds, so no surtax applies ^[3].

Step 5: The result.

Deduction	Per year	Per paycheque (26 pays)
CPP	$3,361.75	about $129.30
EI	$978.00	about $37.62
Federal tax	$5,548.43	about $213.40
Ontario tax	$2,382.21	about $91.62
Total deductions	$12,270.39	about $471.94
Net pay	$47,729.61	about $1,835.75

So a $60,000 Ontario salary works out to roughly $1,836 net every two weeks before any workplace pension, benefits, or union deductions. Ontario also charges a separate health premium based on taxable income, which many employers collect through payroll on top of the amounts above.

Why does net pay change partway through the year?

CPP and EI have yearly maximums, while tax does not. Once your CPP contributions reach $4,230.45 and your EI premiums reach $1,123.07 in 2026, those two deductions stop for the rest of the year and your net pay jumps ^[1][2]. On a $60,000 salary you never reach the maximums, but a $120,000 earner typically maxes out CPP and EI well before the end of the year and sees noticeably bigger paycheques after that.

The second common surprise is the first paycheque of a new job. If your TD1 forms claim only the basic personal amount, withholding follows the standard tables. If you have a second job, both employers may apply the basic personal amount, and you can end up owing tax at filing time unless you adjust the TD1 for the second job.

FAQ

Q: What percentage of my paycheque goes to deductions in Canada?

A: There is no single percentage. CPP takes 5.95% and EI 1.63% on earnings within their limits in 2026, and income tax depends on your income level and province ^[1][2][3]. In the worked example above, a $60,000 Ontario salary loses about 20.5% of gross pay to the three statutory deductions.

Q: Does my employer pay part of CPP and EI?

A: Yes. Your employer matches your CPP contribution dollar for dollar and pays 1.4 times your EI premium ^[1][2]. Only your share appears as a deduction on your pay stub; the employer share is an extra cost on top of your salary.

Q: Why did my CPP and EI deductions stop?

A: Because you reached the 2026 yearly maximums: $4,230.45 for CPP and $1,123.07 for EI ^[1][2]. The deductions restart every January.

Q: What is CPP2?

A: CPP2 is the second, additional CPP tier introduced in 2024. It applies only to earnings above the regular maximum pensionable earnings ($74,600 in 2026), up to a higher second ceiling, so it matters to higher earners ^[1].

Q: Why is EI lower in Quebec?

A: Quebec runs its own parental insurance plan, so the federal EI premium is reduced. In 2026 Quebec employees pay 1.30% instead of 1.63%, with a maximum of $895.70 ^[2]. Quebec employees pay QPIP premiums separately.

Q: What is a TD1 form and why does it matter?

A: The TD1 is the form you complete when you start work, listing the tax credits you can claim, starting with the basic personal amount. Payroll uses your federal and provincial TD1s to decide how much tax to withhold. Wrong or outdated TD1 figures are the most common reason for a surprise tax bill or a large refund.

Q: Do CPP and EI count as tax credits?

A: Yes. The base CPP contribution (the 4.95% part) and your EI premiums create non-refundable tax credits, and the enhanced CPP portion (1.00%) is a deduction from income ^[1][2]. Payroll already reflects this in withholding tables, and the amounts appear on your T4.

Q: Is the tax withheld from my paycheque my final tax?

A: No. Withholding is an estimate based on the assumption that you earn the same pay all year. Your actual tax is calculated on your annual return, where other income, deductions, and credits are included, and you either receive a refund or owe the difference. See the tax filing guide for how the return works.

Q: Are bonuses and overtime taxed differently?

A: They are taxed as regular income, but because payroll annualizes each paycheque, a large bonus cheque can be withheld at a higher marginal rate in that period. The over-withholding, if any, comes back as a refund when you file.

Q: What other deductions might appear on my pay stub?

A: Common extra lines are workplace pension (RPP) contributions, union dues, group health and dental premiums, and voluntary RRSP contributions through a group plan. RPP and group RRSP amounts also reduce your taxable income. Your rights around pay, deductions, and final pay are covered in our guides to employment standards in Canada and termination and severance pay.

Q: Where can I see my total deductions for the year?

A: Your T4 slip, which your employer must give you by the end of February, summarizes your annual earnings, CPP contributions, EI premiums, and income tax deducted. Your final December pay stub usually shows the same year-to-date totals.