Canadian Paycheque Deductions

How a Canadian Paycheque Is Calculated: CPP, CPP2, EI and Income Tax on Every Pay

On a $72,000 salary in Ontario paid every two weeks, the 2026 deductions on a typical cheque are $156.76 for CPP, $45.14 for EI and about $450.06 for income tax, which turns $2,769.23 of gross pay into $2,117.27. The EI line stops in the second-last cheque of the year, so the final cheque is $2,154.18. People on higher salaries see the same effect earlier and more dramatically, because CPP, CPP2 and EI each run out at their own ceiling and income tax moves with them.

Finance Editorial Desk, working from the CRA payroll tables as published on October 23, 2026.

Method note: the cheques below were rebuilt from the CRA's T4127 formulas (the 122nd edition, effective January 1, 2026; the 123rd edition, effective July 1, 2026, lists the same federal rate table and no change for Ontario) for an Ontario resident with default claim amounts and no other deductions. Employers run the CRA's Payroll Deductions Online Calculator or software built on the same formulas. This rebuild was not tested against that calculator, so a real stub can differ by a few cents from rounding and by more with benefits, a pension plan, union dues or a different TD1. These are estimates, not payroll or tax advice.

One cheque, taken apart

Here is the first biweekly cheque of the year for a made-up employee who earns $72,000 in Ontario and has only the basic personal amounts on the TD1 forms.

Income tax is the largest line and the least obvious (the Canadian income tax estimator runs the yearly version, and the 2026 Canada income tax brackets guide lists the brackets used below). CPP and EI are plain percentages, but income tax is computed by turning one cheque into an annual income, finding the annual tax, and dividing by 26. The rest of this article walks that chain with the $72,000 employee's numbers.

The 2026 numbers, with sources

Quebec works differently: the Quebec Pension Plan replaces CPP, Quebec has its own EI rate of 1.30% and collects its own provincial tax. This article is for the rest of Canada, using Ontario for the provincial part.

CPP: the exemption is spread across the year

CPP is 5.95% of pensionable earnings above the $3,500 basic exemption, up to the $74,600 ceiling. Payroll spreads the exemption evenly, so each biweekly cheque shields $3,500 ÷ 26 = $134.62. For the $72,000 employee: 5.95% × ($2,769.23 − $134.62) = 5.95% × $2,634.61 = $156.76.

Over a full year the employee pays 26 × $156.76 = $4,075.76, which is below the $4,230.45 maximum because the salary is below the ceiling. Someone earning exactly $74,600 or more pays $4,230.45: 5.95% × ($74,600 − $3,500).

CPP2 sits on top. It is 4% on earnings between $74,600 and $85,000, capped at $416. A $72,000 salary never reaches it. A person at $85,000 or higher pays the full $416; the CPP contribution decoder shows CPP and CPP2 for any salary.

EI: a flat percentage that stops early

EI is 1.63% of insurable earnings up to $68,900, so the most any employee outside Quebec pays is $1,123.07. The $72,000 employee earns $2,769.23 a cheque and pays $45.14 each time. After 24 cheques the total is $1,083.36, which leaves $39.71 for cheque 25 and nothing for cheque 26. That is why the last cheque is bigger.

Employers pay too. The CRA lists the employer premium as 1.4 times the employee's, so this employee's employer pays $1,572.30 for EI on top of the salary, and matches the CPP of $4,075.76. Those amounts never appear on the stub.

Income tax: the annualising method

The CRA's formulas turn one cheque's income into a yearly number, calculate the year's tax, and divide by the number of pay periods. Here are the steps for the $72,000 employee.

Step 1: annual taxable income (A). Multiply the cheque's gross by 26, after subtracting the part of CPP that is a deduction. The 5.95% CPP rate has two layers: 4.95% is treated as a tax credit and the extra 1% (the enhancement) is deducted from income. For this employee, the enhanced part is $156.76 × (0.01 ÷ 0.0595) = $26.35 per cheque, so A = 26 × ($2,769.23 − $26.35) = $71,315.

Step 2: federal tax. $71,315 falls in the second bracket (above $58,523). The formula is rate × A − constant: 20.5% × $71,315 − $3,804 = $10,815.58. Then subtract credits at 14%, the lowest federal rate:

Divide by 26 and the federal tax per cheque is $295.01. The CPP credit annualises that cheque's contribution ($156.76 × 26 × 0.0495 ÷ 0.0595 = $3,390.76), and the EI credit annualises that cheque's EI but is capped at the $1,123.07 maximum.

Step 3: Ontario tax. The same $71,315 sits in Ontario's second bracket (above $53,891): 9.15% × $71,315 − $2,210 = $4,315.32. Ontario's lowest rate is 5.05%, so the credits are:

Ontario then adds two adjustments. The surtax applies only once basic Ontario tax passes $5,818, and the $3,431.43 here is below it, so it is zero. The Ontario Health Premium is a step schedule on taxable income: at $71,315 the formula gives the lesser of $600 and $450 + 25% × ($71,315 − $48,000), which is $600. Ontario tax for the year is $3,431.43 + $600 = $4,031.43, or $155.05 per cheque.

That adds up to $295.01 + $155.05 = $450.06 of income tax per cheque. Annualised: $11,701.65 using these cheque-level figures, and $11,710.46 when each of the 26 cheques is rounded to the cent and the late-year change in EI is included.

Why the late-year cheques grow

Because CPP, CPP2 and EI have yearly maximums, a high earner stops paying each one part-way through the year. Take a second employee who earns $95,000 in Ontario, biweekly, $3,653.85 gross a cheque.

Take-home rises by $224.44 between the first cheque and the last two, even though the salary never changed. Over the year this employee pays $4,230.45 in CPP, $416 in CPP2 and $1,123.07 in EI, with income tax of about $18,721.

Income tax itself moves up a little when contributions stop. The CPP and EI credits in Step 2 depend on the contributions in the current cheque, so when the cheque carries no CPP or EI, there is no credit and the tax per cheque ticks up (from $714.56 to $759.07 in this example). The net gain of $224.44 is the contributions saved minus that extra tax.

For anyone converting a late-year stub to an hourly rate or a budget, do not use a December cheque as your baseline. The salary-to-hourly guide makes the same point for hourly conversions.

Starting mid-year: the cheques that never grow

The late-year raise exists only for someone who has been with the same employer since January. A new employer starts every contribution at zero and does not count what a previous employer deducted, so a mid-year hire pays the full rate on every cheque until a ceiling is actually reached.

Take the $95,000 employee again, but hired so that only 13 biweekly cheques fall in the calendar year. Each cheque has gross pay of $3,653.85, CPP of $209.39, EI of $59.56 and income tax of $714.56, for net pay of $2,670.34, and all 13 cheques look the same. Year-to-date CPP reaches only $2,722.07 and EI only $774.28, both far under their maximums of $4,230.45 and $1,123.07, so nothing stops and nothing grows. The employee pays $9,289.28 of income tax over the 13 cheques and takes home $34,714.42.

The contrast matters when you budget. An employee who has been in the job since January sees the net cheque climb in the last quarter; one who started in July does not, and the same annual salary produces a flat net pay all the way to December. For anyone who changed jobs during the year, the year-end totals of CPP and EI across both employers are settled when the return is filed, which is why the withholding on the stub is an estimate and not the final word.

What the TD1 forms change

The TD1 and TD1ON forms set the total claim amounts (TC federally and TCP for Ontario). The $72,000 employee's default claims are the basic personal amounts. Change them and the tax per cheque moves in a predictable way.

The zero-claim row shows what withholding looks like if no basic amount is applied on that job: the extra $113.82 a cheque is withheld because no credit is taken. If you have two jobs, only one of them should normally apply the basic personal amount; at tax time you get the credit once, and withholding that was too high comes back as a refund.

The RRSP row uses the CRA's rule that deductions from pay, such as RRSP contributions, reduce the income used to figure withholding. A $115.38 deduction from each cheque cuts income tax withholding by $34.21 a cheque, or $889.50 across the year, a marginal saving of 29.65%, the combined federal 20.5% and Ontario 9.15% rate in this employee's bracket.

The same salary, different pay frequencies

A salary of $72,000 produces nearly identical annual totals under any frequency. The per-cheque figures scale with the number of pays.

These are first-cheque-of-the-year figures. A twenty-six-cheque year pays $4,075.76 in CPP, which is a few cents off the $4,075.75 you get from the annual formula ($72,000 − $3,500) × 5.95%, because each cheque is rounded.

Annual totals at five salaries

Each figure is the sum of 26 rounded cheques for an Ontario employee with default claims. They exclude employer benefits, pension contributions, union dues and taxable benefits, all of which change the result. Income tax grows faster than salary, but CPP and EI together shrink as a share of pay once the ceilings are reached, which is why take-home as a share of gross drops by only about 4 points between $72,000 and $120,000.

CPP and EI per biweekly cheque, at common gross amounts

CPP and EI are the easy lines to audit because each is a flat percentage. This table gives both for a range of biweekly gross pay, using the 2026 rates and the $3,500 exemption spread over 26 cheques ($134.62).

Two thresholds are worth keeping in mind. A biweekly gross of $2,650 or more reaches the $68,900 EI ceiling before the year ends, so the EI line stops in the last cheques of the year. A gross of $2,869.23 or more reaches the $74,600 CPP ceiling, so CPP stops too. Below those amounts, the same deduction runs all 26 cheques.

Withholding is not your final tax

The tax on your stub is withholding, an estimate that the employer sends to the CRA on your behalf. Your actual tax is settled on your return. For the $72,000 employee, the numbers are close. The stubs withhold $11,710.46 across the year. Computing the tax the way a return would (federal $7,670.22 and Ontario $4,031.43) gives $11,701.65. The $8.81 gap is a rounding effect from the stub-by-stub method, and it would come back as a small refund.

Real refunds and balances owing come from things the stub cannot see. A tuition credit, a medical expense claim, a donation, an RRSP contribution made outside payroll and a spouse's income all change the return, not the withholding. In the other direction, a second job that also applies the basic personal amount, or income with no withholding at all, such as self-employment earnings, leaves a balance owing.

That is why the TD1 form matters. If your claim amounts are too high compared with your actual credits, you owe at filing time. If they are too low, you are lending the government money until your refund arrives.

Why your stub and an online calculator disagree

Most gaps of more than a few dollars come from one of these causes:

• Different assumptions about TD1. An online calculator usually assumes default claims; your employer uses your actual forms.
• A different pay frequency or number of pays. Some years have 27 biweekly pay dates, which changes the per-cheque figures.
• Deductions before tax. A workplace pension or group RRSP lowers the income the tax formula sees but not the CPP and EI base.
• Taxable benefits. They raise pensionable and taxable earnings.
• Contributions already made. If you changed jobs, your new employer starts CPP and EI deductions from zero; the CRA formulas adjust only for what the current employer has deducted.
• Rounding. Payroll rounds each cheque to the cent. Over 26 cheques that can move an annual total by a few cents.
• The CRA version. The formulas change twice a year (January and July). This article uses the January 2026 edition.

What this model leaves out

• Pension and benefit deductions. A registered pension plan, group RRSP or union dues reduce the income used for tax. They appear in the T4127 formulas as extra deductions.
• Taxable benefits. The CRA's pensionable earnings are defined as the gross income plus any taxable benefits for the pay period, so a taxable benefit from your employer raises the earnings the formulas use.
• Bonuses and lump sums. The CRA uses a separate method for those. The bonus tax guide works it with figures, and the rest of the payroll set sits on the Canadian paycheque and employment standards hub.
• Other provinces. Brackets, credits and health charges differ. In Ontario the surtax adds to the marginal rate at higher incomes (above roughly $100,000 in this model), and the health premium is a step charge that is already complete by about $72,600.

Sources

• CRA, T4127 Payroll Deductions Formulas, 122nd Edition, effective January 1, 2026 (federal and Ontario rates, constants, Ontario health premium, surtax, K credits, claim code table): https://www.canada.ca/en/revenue-agency/services/forms-publications/payroll/t4127-payroll-deductions-formulas/t4127-jan/t4127-jan-payroll-deductions-formulas-computer-programs.html (checked October 23, 2026)
• CRA, T4127 Payroll Deductions Formulas, 123rd Edition, effective July 1, 2026 (same federal and Ontario rate tables; no change for Ontario; Ontario basic amount $12,989): https://www.canada.ca/en/revenue-agency/services/forms-publications/payroll/t4127-payroll-deductions-formulas/t4127-jul/t4127-jul-payroll-deductions-formulas.html (checked October 23, 2026)
• CRA, CPP contribution rates, maximums and exemptions: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/canada-pension-plan-cpp/cpp-contribution-rates-maximums-exemptions.html (checked October 23, 2026)
• CRA, Second additional CPP (CPP2) contribution rates and maximums: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/calculating-deductions/making-deductions/second-additional-cpp-contribution-rates-maximums.html (checked October 23, 2026)
• CRA, EI premium rates and maximums: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/employment-insurance-ei/ei-premium-rates-maximums.html (checked October 23, 2026)
• CRA, T4001 Employers' Guide, payroll deductions and remittances (CPP and EI apply to salary, wages and bonuses): https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4001/employers-guide-payroll-deductions-remittances.html (checked October 23, 2026)