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CPP and EI contributions

Two payroll contributions come out of employment income before it reaches a bank account: Canada Pension Plan (CPP), which builds a retirement pension, and Employment Insurance (EI), which pays benefits after a job loss, illness or leave. Both stop at a yearly ceiling, so they take a smaller share of a high salary.

The rules (2026, employee share)

  • CPP: 5.95% of earnings between a $3,500 basic exemption and the Year's Maximum Pensionable Earnings of $74,600. That is 4.95% base plus 1.00% enhancement.
  • CPP2: a further 4.00% on earnings between $74,600 and the additional ceiling of $85,000.
  • EI: 1.63% of earnings up to $68,900 (maximum insurable earnings).

The employer pays matching CPP, and EI at 1.4 times the employee rate. Neither employer share is part of take-home pay.

CPP + CPP2 maximum = 4.95% × 71,100 + 1.00% × 71,100 + 4.00% × 10,400
                   = 3,519.45 + 711.00 + 416.00 = $4,646.45
EI maximum         = 1.63% × 68,900 = $1,123.07

On the tax return the pieces are treated differently. The base CPP and the EI premiums earn a credit at the lowest federal rate and the lowest Ontario rate. The enhancement and CPP2 are a deduction from income instead, which lowers taxable income; see income tax brackets. EI premiums are refunded through the return when insurable earnings for the year are $2,000 or less.

The self-employed pay both halves of CPP, twice the employee rates. Half of the base part and all of the enhanced part are deducted from income; the other half of the base part is a credit. Self-employed contributions share the same ceilings with any salary.

CPP contributions end with the month of a person's 70th birthday. Between 65 and 69 a person already receiving the pension may elect to stop contributing; under 65 they are mandatory. What the contributions buy is covered in the CPP retirement pension.

What the engine does

  • Calculates CPP, CPP2 and EI from each person's employment income every month, with the ceilings and exemption growing at the plan's inflation rate after 2026 (the $3,500 exemption is held flat); see tax brackets after 2026.
  • Credits base CPP and EI and deducts the enhancement and CPP2 on the annual assessment.
  • Calculates self-employed CPP on a sole proprietor's yearly net business income, sharing the ceilings with salary.
  • Stops contributions at 70 and, in the year they stop, prorates the ceilings and exemption by the months contributed.
  • Withholds them from pay through the year; see tax withheld from pay.

What it deliberately does not

EI benefits are never paid, so a stretch without work has no EI income in it. The EI opt-in for the self-employed and reduced employer premium rates are not modelled. A person already receiving CPP who keeps working earns a post-retirement benefit that is not estimated.

Connected to

  • Income tax brackets and your marginal rate · Federal and Ontario tax are each charged in slices of income at rising rates, then reduced by credits, with an Ontario surtax and health premium on top. The marginal rate is what the next dollar costs; the average rate is total tax over income.
  • Tax brackets after 2026 are projected, not published · Every year after 2026 is taxed with the 2026 brackets, personal amounts, credits and CPP/EI ceilings grown at the plan's inflation rate. That is how CRA indexes them, but the real figures are announced each fall and will differ.
  • Tax withheld from pay, and the April refund · Employers withhold income tax, CPP and EI from each paycheque as an estimate. The real tax is worked out on the return, and the difference arrives or is owed the following April.
  • The CPP retirement pension · A monthly pension from the Canada Pension Plan based on contributions, payable from 60 to 70. Starting earlier cuts it by 0.6% a month, starting later raises it by 0.7% a month. The plan estimates it from a Service Canada statement or from salary.

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