How does Canada payroll tax work in 2026?
Canada has no zero-rate income-tax band. Federal tax starts at 14% from the first dollar of taxable income. CPP contributions hit both employer and employee at 5.95% each. Add EI premiums on top and the combined employer cost on a new hire is higher than most people expect before they run the numbers.
· Canada guide
Illustration · Toronto, Canada
Canada payroll tax has two main employer costs: CPP and EI. The employer pays CPP at 5.95% on employee earnings up to the yearly maximum. The employer also pays EI premiums at 1.4 times the employee EI rate.
The employee pays CPP at 5.95% on the same earnings. The employee also pays EI premiums on insurable earnings. Both CPP and EI stop once the annual maximum contributions are reached.
Federal income tax has five brackets. Tax starts at 14% on the first dollar of taxable income. The top rate is 33% on income above CA$ 258,482. Canada does not have a zero-rate band. A Basic Personal Amount tax credit reduces the tax owed.
Most employers are regular remitters. They send source deductions to the CRA by the 15th of the month following the pay period. Larger employers remit more often.
What does an employer pay in Canada payroll contributions?
The employer pays CPP at 5.95% on each employee's pensionable earnings. Pensionable earnings have an annual maximum set by CRA each year.
The employer also pays EI premiums. The employer EI rate is 1.4 times the employee EI rate. In 2026 the employee EI rate is 1.64% on insurable earnings. That makes the employer EI rate approximately 2.30% on the same earnings, up to the annual maximum insurable amount.
| Contribution | Employer rate | Basis |
|---|---|---|
| CPP (Canada Pension Plan) | 5.95% | Pensionable earnings between the basic exemption and the yearly maximum pensionable earnings (YMPE) |
| CPP2 (second additional) | 4% (on earnings above the first YMPE up to the second YMPE) | Higher earnings band only; applies to a narrower slice of high earners |
| EI (Employment Insurance) | 1.4 × employee EI rate (approximately 2.30% in 2026) | Insurable earnings up to the annual maximum insurable amount |
CPP contributions stop once the employee's cumulative pensionable earnings hit the yearly maximum pensionable earnings (YMPE). For 2026, CRA set the YMPE at $73,200. The basic annual exemption is $3,500, so the base CPP contribution is calculated on earnings between those two figures. At the maximum, the employer pays $4,142.59 in CPP per employee for the year.
EI also has an annual ceiling. In 2026 the maximum insurable earnings are $65,700. Once an employee's insurable earnings hit that figure for the year, EI deductions stop for both employer and employee.
CPP2: the second additional contribution
Since 2024, a second additional CPP contribution (CPP2) applies to earnings between the first YMPE and a second, higher ceiling (the year's maximum pensionable earnings for CPP2, set at $81,900 for 2026). The CPP2 employee rate and employer rate are both 4% on that narrow band. For most employees earning under $73,200 a year, CPP2 does not apply.
What does an employee pay in Canada payroll contributions?
The employee pays CPP at 5.95% on pensionable earnings. This matches the employer rate exactly.
The employee also pays EI premiums at 1.64% on insurable earnings in 2026, up to the annual maximum insurable earnings of $65,700.
| Contribution | Employee rate (2026) | Annual ceiling |
|---|---|---|
| CPP | 5.95% | $73,200 YMPE; basic exemption $3,500 |
| CPP2 | 4% | Earnings between $73,200 and $81,900 only |
| EI | 1.64% | $65,700 maximum insurable earnings |
Once an employee's annual CPP contributions hit the maximum, the employer must stop deducting CPP from that employee's pay for the rest of the calendar year. The same rule applies to EI. Employers track cumulative contributions per employee throughout the year.
Quebec residents do not pay federal EI at the same rate. Quebec has its own provincial parental insurance plan (QPIP) and uses a reduced EI rate. Employers hiring in Quebec must apply the Quebec-specific rates and remit to both CRA and Revenue Quebec.
Canada federal income tax brackets for 2026
Canada has five federal income tax brackets. Tax starts at 14% from the first dollar of taxable income. There is no zero-rate band.
A Basic Personal Amount tax credit of approximately $16,129 for 2026 reduces the tax owed. This is a non-refundable credit, not a zero-rate band. It is worth 14% of the personal amount, reducing federal tax by around $2,258.
| Federal taxable income (2026) | Rate |
|---|---|
| CA$ 0 to CA$ 58,523 | 14% |
| CA$ 58,523 to CA$ 117,045 | 20.5% |
| CA$ 117,045 to CA$ 181,440 | 26% |
| CA$ 181,440 to CA$ 258,482 | 29% |
| Above CA$ 258,482 | 33% |
Provincial income tax adds to the federal rate
Every province and territory also levies its own income tax. Provincial rates range from around 5% at the bottom bracket in Alberta to over 20% at the top in Quebec and Nova Scotia. The combined federal and provincial marginal rate on high earners in Ontario reaches approximately 53.5%. Employers run payroll against the combined federal plus provincial rate using the employee's province of employment, as determined by CRA's TD1 personal tax credits form.
The Basic Personal Amount is not a zero-rate band
Canada is commonly misunderstood as having a zero-rate first band. It does not. Every dollar of taxable income is taxed at 14%. The Basic Personal Amount works as a non-refundable tax credit applied at the end. For payroll purposes, CRA's payroll deduction tables build the credit into the withholding calculation. The practical effect is similar but the mechanics matter for accurate payroll setup.
Quebec income tax
Quebec residents file separate provincial returns with Revenue Quebec. The provincial tax rates and brackets differ from other provinces. Employers with Quebec employees remit provincial income tax to Revenue Quebec, not CRA.
How do CRA payroll source deductions work?
Employers must withhold income tax, CPP, and EI from every employee's pay. These are called source deductions.
Most employers are regular remitters. They send all source deductions to CRA by the 15th of the month following the pay period (Income Tax Regulations, CRC c.945, s.108).
Regular remitters send source deductions to the Receiver General on or before the 15th of the month following the month in which amounts were withheld. Accelerated remitters with average monthly withholding of $25,000 or more must remit more frequently. New employers start as regular remitters and are reclassified as their payroll grows.
Source: Income Tax Regulations CRC c.945 s.108, Justice Laws Website
The remittance categories by average monthly withholding:
| Remitter type | Average monthly withholding | Due date |
|---|---|---|
| New employer | Any amount | 15th of the following month |
| Regular remitter | Under $25,000 | 15th of the following month |
| Accelerated Tier 1 | $25,000 to $99,999 | Within 3 business days of the payroll date (twice monthly) |
| Accelerated Tier 2 | $100,000 or more | Within 3 business days of each payroll (weekly or more frequent) |
T4 slips and the year-end filing
Employers must issue a T4 slip to every employee and file the T4 Summary with CRA by the last day of February following each calendar year. The T4 reports total employment income, CPP contributions, EI premiums, and income tax withheld for the year. Missing or late T4 filings attract CRA penalties.
Teamed runs all source deduction calculations, remittances, and year-end T4 filings for Canadian employees. Clients receive payroll reporting but do not administer CRA submissions directly.
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Collect pay data
Gather hours worked, salary, bonuses, and any taxable benefits for the pay period. Confirm whether the employee has hit their annual CPP or EI maximums.
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Calculate gross pay
Total all earnings for the period. Include regular wages, overtime, commissions, and any other taxable employment income.
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Deduct employee CPP and EI
Apply the CPP employee rate and EI employee rate to the relevant earnings. Use CRA's published payroll deduction tables or the Payroll Deductions Online Calculator to arrive at the correct withholding amounts.
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Deduct federal and provincial income tax
Apply the combined federal and provincial income tax withholding to the employee's net taxable pay, using the province of employment and the TD1 personal tax credits declared by the employee.
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Calculate employer CPP and EI
Calculate the employer CPP contribution, which matches the employee CPP deduction exactly. Then calculate the employer EI premium at the employer EI multiplier of the employee EI deduction. Both are payroll costs on top of gross salary.
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Remit to CRA and pay employees
Pay employees their net wages. Remit all source deductions (income tax plus employee and employer CPP and EI) to the Receiver General by the due date for your remitter category.
CPP and pension contributions in the payroll stack
CPP is Canada's mandatory pension scheme. The employer and employee each contribute at 5.95% on pensionable earnings.
There is no separate mandatory auto-enrolment pension distinct from CPP at the federal level. CPP is the pension contribution.
CPP replaces both the social security contribution and the pension contribution in the Canadian payroll stack. Unlike the UK, where National Insurance and pension auto-enrolment are separate requirements, Canada has one contribution that serves both purposes.
The 2026 CPP structure:
- Base CPP: employer and employee each pay 5.95% on earnings between $3,500 (basic annual exemption) and $73,200 (YMPE). Maximum employer contribution is $4,142.59 per employee per year.
- CPP2: an additional 4% applies on earnings between $73,200 and $81,900. This affects only higher-paid employees and the maximum additional contribution is small.
Private pension plans are common but not mandatory. Many employers offer group RRSPs, defined contribution plans, or defined benefit plans. These sit outside the mandatory CPP framework and are negotiated as part of the employment package. Teamed can advise on market-standard benefit structures in Canada.
Federal minimum wage and payroll impact
The federal minimum wage increased to CA$ 18.15/hour from 1 April 2026. This rate applies to workers in federally regulated industries. Most employees in Canada are covered by provincial minimums, which vary by province and are often higher than the federal floor. Alberta, British Columbia, and Ontario all have provincial minimums above the federal rate. Employers must apply whichever rate is higher.
How does Teamed handle Canada payroll for you?
Teamed becomes your legal employer of record in Canada for from $599 per employee per month, with zero FX mark-up in any currency.
CPP, EI, income tax, and all CRA source deductions run on one platform.
Real HR and legal experts manage your Canadian hires from the first offer letter through every CRA remittance and year-end T4. An actual person, not a pooled queue. There is no setup fee and no exit fee. Employer cost passes through at cost, itemised on every invoice.
Payroll runs across all ten provinces and three territories, with the correct provincial income tax and EI rates applied automatically. A Canadian contractor who converts to employment keeps their record. That same employee can graduate from EOR to your own Canadian entity without switching systems. EOR is the right model for a first Canadian hire, until it isn’t.
Run the Employer Cost Calculator to see CPP, EI, and provincial costs together before you make an offer. Key sources: Employment and Social Development Canada, Canada Labour Code, and Income Tax Regulations.
Frequently asked questions
What is the CPP contribution rate for employers in Canada in 2026?
The employer CPP base rate is 5.95% on pensionable earnings between the basic exemption of $3,500 and the yearly maximum pensionable earnings of $73,200. The employer contribution is exactly equal to the employee contribution. A second additional CPP rate (CPP2) of 4% applies on earnings between $73,200 and $81,900 for higher-paid employees.
Does Canada have a zero-rate income tax band?
No. Federal income tax in Canada starts at 14% from the first dollar of taxable income. Canada uses a Basic Personal Amount tax credit instead of a zero-rate band. For 2026 the Basic Personal Amount is approximately $16,129. This reduces the federal tax owed but is not a zero-rate threshold.
What are the 2026 federal income tax brackets in Canada?
The five federal brackets for 2026 are: 14% up to CA$ 58,523; 20.5% from CA$ 58,523 to CA$ 117,045; 26% from CA$ 117,045 to CA$ 181,440; 29% from CA$ 181,440 to CA$ 258,482; and 33% above CA$ 258,482. Provincial income tax adds significantly to these rates.
When must payroll source deductions be remitted to CRA?
Most employers are regular remitters and must send source deductions to CRA by the 15th of the month following the month in which they were withheld. Accelerated Tier 1 remitters (average monthly withholding of $25,000 or more) remit twice a month. Accelerated Tier 2 remitters (average monthly withholding of $100,000 or more) remit after each payroll run. The remitter category is set by CRA based on your payroll history.
Is there a separate pension obligation on top of CPP in Canada?
No mandatory separate pension exists at the federal level. CPP is Canada's required pension scheme by law. Both employer and employee contribute at 5.95% on base pensionable earnings. Private pension plans and group RRSPs are common but voluntary. Employers are not required by law to offer a supplementary pension beyond CPP.
The CPP rate is the same on both sides of the payroll. Employer and employee each pay the same percentage. That means the first thing you need to model for a Canadian hire is double the CPP contribution rate, not just the employer half. Most cost calculators built for UK or US norms miss this and undercount the true cost.
Canada taxes income from the first dollar at 14%. There is no zero-rate band.
Add CPP at 5.95% on both sides and EI on top. The combined employer cost on a Canadian hire surprises most finance teams used to other markets.
Run the numbers before you make the offer.
