What You Need to Know About Canada Payroll Tax

Every Canadian employer is responsible for withholding Canada Pension Plan contributions at 5.95%, Employment Insurance premiums at $1.63 per $100 of insurable earnings, and federal-provincial income tax from each paycheque. On top of that, you must match CPP and pay 1.4 times the employee EI rate out of your own pocket. This guide breaks down the calculations, remittance schedules, and year-end filings you need to get right.

1. What is payroll tax?

Payroll tax in Canada covers the mandatory deductions and contributions that employers must withhold from employee wages and remit to the CRA. The main components are:

Canada Pension Plan (CPP): A retirement benefit funded by both employer and employee contributions
Employment Insurance (EI): Provides temporary income support for unemployed workers, funded by both employer and employee premiums
Income tax withholding: Federal and provincial income tax deducted from employee pay based on their tax bracket

Employers are responsible for calculating, deducting, and remitting these amounts on behalf of their employees.

2. Who does it apply to?

This usually applies to:

All employers in Canada, regardless of business size
Employees aged 18 to 70 (for CPP contributions)
Employees in insurable employment (for EI premiums)
Self-employed individuals (CPP only, as they pay both the employee and employer portions)
Employers with workers in Quebec (who contribute to QPP and QPIP instead of CPP and EI)

3. Why does it matter?

Understanding payroll tax helps you:

Stay compliant with the CRA and avoid penalties
Avoid late remittance charges and interest
Keep proper records of all employee deductions
File and pay correctly based on your remittance schedule
Plan your cash flow better by budgeting for employer contributions

4. How does it work?

Here's the basic process:

Register for a payroll account with the CRA using form RC1
Obtain each employee's Social Insurance Number (SIN) and completed TD1 forms
Calculate CPP contributions, EI premiums, and income tax deductions each pay period
Deduct the employee portions from their pay
Add the employer portions (CPP matching and EI at 1.4 times the employee rate)
Remit the total deductions to the CRA by your due date
File T4 slips and the T4 Summary by the end of February for the previous year

5. What forms are involved?

T4 (Statement of Remuneration Paid) - Annual slip given to each employee showing total earnings, CPP, EI, and income tax deducted
T4 Summary - Annual summary filed with the CRA reporting all T4 slips for the year
TD1 (Personal Tax Credits Return) - Completed by employees when hired to determine income tax withholding
PD7A (Statement of Account for Current Source Deductions) - The CRA's statement showing your remittance balance
RC1 (Business Registration) - Used to register for a payroll account with the CRA
ROE (Record of Employment) - Issued to employees when they stop working, used for EI claims

6. What information do you need?

Before handling payroll tax, make sure you have:

CRA payroll account number (RP number)
Employee Social Insurance Numbers (SIN)
Completed TD1 forms (federal and provincial) for each employee
Employee salary or hourly rate details
Provincial payroll tax requirements (vary by province)
Your assigned remittance schedule from the CRA
CPP and EI rate tables for the current year

7. Important deadlines

Filing frequency: Depends on your average monthly withholding amount. Regular remitters pay by the 15th of the following month. Quarterly remitters pay by the 15th after each quarter. Accelerated remitters have more frequent schedules
T4 filing deadline: Last day of February following the calendar year (for 2025, due March 2, 2026)
Year-end requirements: Issue T4 slips to employees and file with the CRA. Issue ROEs when employees leave employment
Payment deadline: Varies by remitter type. Most small employers remit by the 15th of the following month

8. Common mistakes to avoid

Using outdated CPP and EI rates at the start of a new year
Not adjusting for the CPP2 (second ceiling) contributions on earnings between $74,600 and $85,000
Failing to remit employer portions (CPP matching and 1.4x EI)
Missing the T4 filing deadline and incurring penalties
Not issuing ROEs within 5 days of an employee's last day
Forgetting about provincial payroll taxes in some provinces (Ontario EHT, Manitoba HE levy, etc.)
Not accounting for taxable benefits when calculating deductions

9. Simple example

You employ one worker in Ontario with an annual salary of $60,000 ($5,000 per month).

Employee deductions (from their pay):

CPP (5.95% on earnings above the $3,500 basic exemption): approximately $281 per month
EI (1.63% on insurable earnings): approximately $82 per month
Federal and Ontario income tax: approximately $750 per month (varies by personal credits)

Employer costs (on top of salary):

CPP employer match: approximately $281 per month
EI employer premium (1.4x employee rate): approximately $115 per month

Total monthly employer cost: $5,000 salary + $281 CPP + $115 EI = $5,396

Total remitted to CRA monthly: $281 (employee CPP) + $281 (employer CPP) + $82 (employee EI) + $115 (employer EI) + $750 (income tax) = $1,509

10. FAQ

Q: What are the 2026 CPP and EI rates? A: CPP contributions are 5.95% for both employee and employer on pensionable earnings up to $74,600 (with a $3,500 basic exemption). CPP2 applies at 4% on earnings between $74,600 and $85,000. EI premiums are 1.63% for employees, and employers pay 1.4 times that rate.

Q: How do I know my remittance schedule? A: The CRA assigns your remittance schedule based on your average monthly withholding amount. New employers start as regular remitters (due the 15th of the following month).

Q: Do I need to contribute to CPP for part-time employees? A: Yes. CPP contributions apply to all employees aged 18 to 70 who earn above the basic exemption of $3,500 per year, regardless of full-time or part-time status.

Q: What about Quebec employees? A: Quebec has its own pension plan (QPP) and parental insurance plan (QPIP). You remit these to Revenu Quebec instead of the CRA for CPP and EI.

Q: What happens if I remit late? A: The CRA charges a penalty of 3% if your remittance is 1-3 days late, 5% if 4-5 days late, 7% if 6-7 days late, and 10% if more than 7 days late or not remitted at all. Interest also applies.

11. Final takeaway

Canadian payroll tax involves CPP, EI, and income tax withholding. Employers must match CPP contributions and pay 1.4 times the employee EI rate. Remit on time, file T4s by the end of February, and watch for annual rate changes.

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What you need to know about Canada payroll tax: CPP is 5.95% each for employee and employer, EI is 1.63% for employees with the employer paying 1.4 times that rate. Remit to the CRA on schedule to stay compliant.

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