Every time you get paid in Canada, your employer is required by law to deduct certain amounts from your gross earnings before handing over your paycheque. If you've ever looked at your pay stub and wondered why your take-home is noticeably lower than what your offer letter said, payroll deductions are the answer. Understanding exactly what comes off — and why — helps you budget accurately, catch errors, and avoid nasty surprises at tax time.
Here's a complete breakdown of how payroll deductions work in Canada for 2025, including the current rates, maximums, and what your employer is obligated to do on your behalf.
Every Canadian employee subject to federal payroll rules has three mandatory deductions taken from each paycheque:
These are not optional. Your employer is legally required to calculate and remit these amounts to the CRA on your behalf, regardless of whether you ever asked them to. Let's go through each one in detail.
The Canada Pension Plan is a mandatory contributory retirement program. Both you and your employer contribute equally to it throughout your working life, building up entitlement to a monthly pension in retirement.
For 2025, the key CPP numbers are:
To see how this works in practice: if you earn $71,300 or more in 2025, you contribute 5.95% on every dollar between $3,500 and $71,300, which equals $4,034.10 over the year. Once you hit that maximum, CPP stops being deducted until January of the following year.
Since 2024, Canada introduced a second tier of CPP contributions known as CPP2. This applies to earnings above the first earnings ceiling. For 2025:
If your income exceeds $71,300, you'll see a separate CPP2 line on your pay stub. Like base CPP, it stops once the annual maximum is reached.
Employment Insurance provides temporary income replacement if you lose your job, become ill, or take parental leave. Premiums are paid by both employees and employers, though employers pay at a higher rate.
For 2025:
Unlike CPP, there is no basic exemption for EI — premiums begin on your very first dollar of insurable earnings. Once you reach $65,700 in earnings during the calendar year, EI deductions stop automatically.
Quebec residents: Quebec operates the Quebec Parental Insurance Plan (QPIP) separately, which covers maternity and parental benefits. Quebec employees pay lower EI premiums but also contribute to QPIP, so the combined effect is different from other provinces. If you have employees in Quebec, the rates and remittance rules differ — consult a payroll professional for guidance.
Income tax withholding is more complex than CPP or EI because it is not a flat rate — it depends on your total income, your province of residence, and the personal tax credits you've claimed.
Your employer uses the CRA's T4032 Payroll Deductions Tables to calculate how much federal and provincial tax to withhold from each pay period. These tables translate your annual projected income (from this job alone) into a per-period deduction amount.
When you start a new job, you complete a TD1 — one federal form and one provincial form. These forms tell your employer which non-refundable tax credits you're claiming, so they can reduce your withholding accordingly.
Common credits claimed on the federal TD1 include:
If your situation changes — you get married, a dependent moves in, or you become eligible for a disability credit — you should submit a new TD1 so your employer adjusts your withholding. You don't have to wait until tax filing season.
Here's a situation that catches many Canadians off guard: if you have two employers, each one calculates your tax withholding as if your income from that job is your only income. They have no visibility into what the other employer is paying you.
The result is almost always under-withholding. When you file your tax return, you end up owing a lump sum to the CRA.
The fix is straightforward: on the TD1 for your secondary job, do not claim the Basic Personal Amount or any other credits. This tells that employer to withhold at a higher rate, much closer to what you'll actually owe once your combined income is assessed.
You can also ask your employer to deduct extra tax from each paycheque by writing an amount in the "Additional tax to be deducted" line on your TD1. This is particularly useful if you earn self-employment or freelance income on the side and want to avoid filing quarterly tax instalments with the CRA. By having your employer withhold a bit more each pay period, you essentially prepay your self-employment tax obligation in manageable increments.
Once you understand what's being deducted, your pay stub becomes easy to interpret. Here's what each line represents:
The year-to-date (YTD) columns are worth watching. Once your CPP or EI YTD amounts hit the annual maximum, those lines disappear from your pay stub — your net pay increases slightly for the remaining pay periods of the year.
Employees often focus on their own side of payroll, but employers carry significant legal responsibilities too. For regular remitters (most small and medium businesses), the obligations are:
Failure to remit payroll deductions on time is one of the most common — and costly — compliance errors for small businesses. Penalties start at 3% of the overdue amount and escalate quickly. Directors of corporations can be held personally liable for unremitted payroll deductions under the Income Tax Act, which makes payroll accuracy a governance issue, not just an administrative one.
If you're a small business owner managing payroll yourself, working with a payroll specialist or an accountant familiar with CRA requirements is well worth the investment. At Swift Accounting Calgary, we help business owners set up compliant payroll systems, manage remittances, and navigate year-end T4 filing so nothing falls through the cracks.
| Deduction | Employee Rate | Maximum (Employee) | Employer Rate |
|---|---|---|---|
| CPP | 5.95% (on $3,500–$71,300) | $4,034.10 | Matches employee |
| CPP2 | 4% (on $71,300–$81,900) | $428.00 | Matches employee |
| EI | 1.64% (on up to $65,700) | $1,077.48 | 2.296% / max $1,507.46 |
| Income Tax | Based on TD1 and T4032 tables | No fixed cap | N/A |
Whether you're an employee trying to understand your paycheque or a business owner trying to stay on the right side of CRA payroll rules, having accurate numbers and a solid process makes all the difference. The team at Swift Accounting is here to help with both.
Contact Swift Accounting Calgary to speak with a payroll specialist — we'll make sure your deductions are right, your remittances are on time, and your year-end is stress-free.
Once your CPP and EI contributions hit their annual maximums — $4,034.10 for base CPP and $1,077.48 for EI in 2025 — your employer stops deducting those amounts for the rest of the calendar year. This is automatic and tracked by your employer's payroll system using your year-to-date totals. You'll notice your take-home pay increase slightly in the pay periods after each maximum is reached. Income tax withholding continues throughout the year regardless.
Each employer deducts CPP and EI separately based on what you earn with them. However, your combined CPP and EI contributions across all employers still cannot exceed the annual maximums. If you overpay — for example, because two employers each deducted up to the maximum — you can claim a CPP and EI overpayment refund when you file your personal tax return. The CRA calculates the overpayment automatically and applies the refund to your return. Keep in mind that both employers will deduct income tax independently, so you should file updated TD1 forms to avoid under-withholding on your total combined income.
This is unfortunately more common than it should be, particularly with small businesses in financial difficulty. The amounts deducted from your paycheque are held "in trust" for the Crown — they belong to the CRA, not to your employer. If your employer fails to remit, they face escalating penalties and interest. Your own tax account is generally not penalised for your employer's failure to remit, because the CRA's records will show the amounts withheld via your T4 slip. However, if you suspect your employer is not remitting correctly, you can contact the CRA to report a concern. Working with a professional payroll service, like the team at Swift Accounting, significantly reduces this risk for business owners.
Yes — but only by claiming credits you are legitimately entitled to on your TD1. You cannot simply ask your employer to withhold less tax because you'd prefer more cash now. However, if you have deductible expenses such as RRSP contributions, union dues, or employment expenses (claimed via a T2200 signed by your employer), you can apply to the CRA for a Letter of Authority, which authorises your employer to reduce withholding by a specific amount. You can also go the other direction: request that your employer deduct additional tax each period by noting a dollar amount in the "Additional tax to be deducted" section of your TD1 — a useful strategy if you have side income or investment income that won't be covered by employer withholding.
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