CPP and EI Explained: How Canada's Payroll Deductions Work

Every Canadian paycheque carries two mandatory deductions beyond income tax: CPP (Canada Pension Plan) and EI (Employment Insurance). Neither is technically a tax — they're contributions to specific programs that pay you back later — but they reduce take-home pay the same way tax does, and both have gotten more complicated since 2024.

CPP: now effectively two contributions in one

Since 2024, CPP has two layers. The original contribution (informally "CPP1") applies to earnings between a basic exemption and an annual ceiling called the Year's Maximum Pensionable Earnings (YMPE). A second layer, CPP2, was added on top to fund the ongoing CPP enhancement, applying only to a narrow band of higher earnings above the YMPE.

The first $3,500 of annual earnings is exempt from CPP1 entirely — that's the basic exemption, and it hasn't changed in decades. CPP2 has no exemption of its own; it applies to every dollar between $74,600 and $85,000. Employers match both layers dollar for dollar. Self-employed individuals pay both the employee and employer share themselves — 11.90% on CPP1 and 8.00% on CPP2.

EI: a single rate, a single ceiling

Employment Insurance is simpler — one rate, applied up to one ceiling called Maximum Insurable Earnings.

Employers pay 1.4 times the employee rate — so for every dollar an employee contributes to EI, their employer contributes about $1.40. Unlike CPP, self-employed people generally don't pay EI premiums on their own business income (though a special voluntary program exists for limited benefits like parental leave).

Worked example: $90,000 salary

Deductions stop once you hit the annual maximum

Once your year-to-date CPP and EI deductions reach their respective annual maximums, your employer simply stops withholding them for the rest of the calendar year — you'll notice a slightly bigger paycheque in your final pay periods. Deductions restart from zero on January 1.

Why CPP2 exists

CPP2 is part of a multi-year CPP enhancement designed to eventually replace a larger share of pre-retirement income than the original CPP alone provided. The base CPP1 rate finished its own phased increase (from 4.95% to 5.95%) in 2023; CPP2's earnings band reached its final width — 14% above the YMPE — in 2025, so the structure described here is expected to stay stable going forward, with only the dollar ceilings adjusting annually for wage growth.

On your tax return

Part of your CPP contribution is treated as a non-refundable tax credit, and part as a direct deduction from income — a split that dates back to when the enhancement began in 2019. CPP2 contributions are fully deductible. EI premiums are also eligible for a non-refundable tax credit. Your T4 slip separates these out, so you don't need to calculate the split yourself.