What's confusing you most?
"Why is my paycheque smaller than expected?"
— four separate deductions come off before you see a dollar.
New to Canadian payroll — CPP and EI don't
exist in most other countries' systems.
Higher earner — you may notice a second CPP
deduction (CPP2) that's new since 2024.
Didn't fill out a TD1 form — this alone can
throw off how much tax gets withheld.
Your first Canadian paycheque can be a shock if you're only expecting income tax to come off. In reality, four separate deductions apply, and understanding each one makes your paystub much less mysterious.
4
deductions on every paystub
5.95%
base CPP rate on earnings
1.63%
EI premium rate
$12,989
2026 Ontario basic personal amount
The Four Deductions on Every Paycheque
- ▸Federal income tax:Progressive brackets — the lowest 2026 federal bracket is 15% on income up to $58,523, with higher rates applying only to income above each threshold, not your whole salary.
- ▸Ontario provincial tax:A separate progressive system layered on top of federal tax, starting at 5.05% for 2026.
- ▸CPP (Canada Pension Plan):A mandatory retirement contribution, matched by your employer.
- ▸EI (Employment Insurance):A mandatory premium that funds benefits if you lose your job or take certain types of leave.
CPP and EI deductions stop automatically once you reach their annual
contribution maximums. Income tax withholding, however, continues throughout
the year based on your earnings and tax withholding calculations.
2026 CPP and EI Rates
| Deduction | Rate | Applies to | Annual maximum |
|---|---|---|---|
| Base CPP | 5.95% | Earnings between $3,500–$74,600 | $4,230.45 |
| CPP2 (enhanced) | 4% | Earnings between $74,600–$85,000 | $416 |
| EI | 1.63% | Insurable earnings up to $68,900 | $1,123.07 |
CPP2 is a relatively new second tier introduced as part of CPP's ongoing
enhancement — it only applies once your earnings pass the base CPP ceiling
($74,600), and it appears as a separate line on your T4 (boxes 16–18 report
CPP tiers 1 and 2 separately).
2026 Ontario Income Tax Brackets
| Taxable income | Ontario rate |
|---|---|
| Up to $53,891 | 5.05% |
| $53,891–$107,785 | 9.15% |
| $107,785–$150,000 | 11.16% |
| $150,000–$220,000 | 12.16% |
| Above $220,000 | 13.16% |
This is on top of separate federal tax brackets — your total rate combines both.
The Line You Might Not Recognize: Ontario Health Premium
If your provincial tax deduction seems higher than expected, part of it may
include the Ontario Health Premium — a separate charge calculated as
part of your Ontario income tax once your taxable income passes $20,000,
ranging from a few hundred dollars up to $900 annually depending on your
income tier. It's not a separate line item on most paystubs, but it's baked
into the provincial tax number.
Why Your TD1 Forms Actually Matter
What TD1 forms doThe
federal TD1 and provincial TD1ON tell your employer which personal tax
credits to apply, which determines your "claim code" and how much tax gets
withheld.
If you don't file oneYour
employer defaults to the basic personal amount only —Your withholding may
not accurately reflect your personal tax situation.
When to update itAny
major life change — new job, second job, marriage, dependants — is a good
reason to review your TD1 forms.
It's not automaticSome
employees assume tax withholding just "figures itself out" — it's actually
based directly on what you declare on these forms.
Reading Your T4 at Tax Time
Your annual T4 slip summarizes your employment income, CPP contributions (reported separately for base CPP and CPP2), EI premiums, and total income tax withheld (including both federal and provincial income tax). Employers must issue T4 slips to employees and file them with the CRA by the end of February following the tax year.
4 deductionsFederal & Ontario income tax, CPP, EI
5.05%Lowest Ontario tax rate
5.95%Base CPP rate
(Up to $74,600)
(Up to $74,600)
4%CPP2 rate
($74,600 - $85,000)
($74,600 - $85,000)
1.63%EI premium rate
Up to $12,989Ontario Basic Personal Amount
(income-dependent)
(income-dependent)
TD1 formsDetermine your tax withholding
T4 by FebAnnual tax summary slip
Frequently Asked Questions (FAQ)
Q1. Can I opt out of CPP contributions?
No, standard employees aged 18 to 65 in Canada cannot opt out of CPP (Canada Pension Plan) contributions. However, if you are between 65 and 70 years old and still working, you can choose to stop contributing by completing CRA Form CPT30 and submitting it to your employer.
Q2. Does EI stop being deducted during the year?
Yes, EI (Employment Insurance) deductions stop once you reach the annual maximum contribution limit. For 2026, employee EI deductions stop after you pay a total of $1,123.07 in premiums, which corresponds to reaching $68,900 in annual insurable earnings.
Q3. Why did my paycheque increase late in the year (e.g., in November)?
Your take-home pay increases late in the year because you have hit the annual contribution caps for CPP and EI. Once you reach these maximums, your employer stops withholding these taxes from your paycheque, leaving you with higher net income until January 1st.
Q4. Does everyone pay CPP2 contributions?
No, CPP2 only applies to workers earning more than the base CPP ceiling. In 2026, you only pay the 4% CPP2 contribution on your income that falls between $74,600 and $85,000. If your annual salary is $74,600 or less, you will not pay any CPP2.
Q5. Can I change my TD1 form at any time?
Yes, you can submit a new federal or provincial TD1 form to your employer at any time during the year. You should update your TD1 whenever your tax situation changes—such as starting a second job, claiming new eligible deductions, or changing your personal tax credits.
Q6. Why did my standard CPP deductions stop during the year?
Standard CPP deductions stop because you reached the maximum annual limit for the first tier of CPP. In 2026, standard CPP (5.95%) stops once your total contributions reach $4,230.45. If your income is above $74,600, your paycheque will switch to the 4% CPP2 deduction instead.
Q7. What happens if I switch jobs during the year? Do CPP and EI reset?
Yes, CPP and EI contribution tracking resets whenever you change employers in Canada. Your new employer is required to deduct CPP and EI from zero, which may lead to overpayment. However, you will receive a full refund for any excess CPP or EI paid when you file your annual tax return.
Q8. What should I do if my T4 box 22 doesn't match my last paystub?
Minor differences between Box 22 (Income Tax Deducted) on your T4 and your final paystub can occur due to year-end payroll adjustments or taxable benefit calculations. If the difference is significant, contact your employer's payroll department to request a corrected T4 slip (T4 Amended) before filing your taxes.
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