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Understanding Your Canadian Paycheque

Every Canadian paycheque has several mandatory deductions taken at source by your employer. Understanding what each deduction is and why it exists helps you verify that your pay is correct and plan your finances more effectively. The four main statutory deductions are federal income tax, provincial income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums. In Quebec, the QPP (Quebec Pension Plan) and QPIP (Quebec Parental Insurance Plan) replace CPP and part of EI.

Federal and provincial income taxes are withheld based on the assumption that you will earn the same amount each pay period throughout the year. Your employer uses the CRA payroll deduction tables (or formulas) and the personal tax credits you claimed on your TD1 form to calculate how much to withhold. If you have additional deductions such as RRSP contributions, childcare, or support payments, you can apply to the CRA for a reduction in withholding using Form T1213, which means more money in each paycheque rather than waiting for a refund at tax time.

CPP contributions for 2026 are 5.95% on pensionable earnings between $3,500 (the basic exemption) and $74,600 (the first earnings ceiling). Once you reach the ceiling, no more CPP is deducted for the rest of the year. CPP2 adds an additional 4% on earnings between $74,600 and $85,000. EI premiums are 1.63% on insurable earnings up to $68,900. Like CPP, once you hit the annual EI maximum, deductions stop. This is why your take-home pay often increases later in the year — you have maxed out your CPP and EI contributions.

Your T4 slip, issued by your employer each February, is the official annual summary of your earnings and deductions. It reports your total employment income (Box 14), income tax deducted (Box 22), CPP contributions (Box 16), EI premiums (Box 18), and other amounts like union dues, pension adjustments, and taxable benefits. You need the T4 to file your annual tax return, and the amounts on it should reconcile with the total of your pay stubs for the year. Reviewing your pay stubs regularly is the best way to catch errors early and avoid surprises at tax time.

Beyond statutory deductions, your employer may also deduct amounts for group benefits (health, dental, life insurance), employer pension contributions, union dues, parking, or charitable donations. These are shown separately on your pay stub. Some of these, like union dues and employer pension contributions, are tax-deductible, while taxable benefits (such as employer-paid group life insurance over $25,000) are added to your income on the T4.