How to Calculate CPP, EI and Federal Tax in Canada

To calculate CPP, EI, and federal tax in Canada for a 2026 paycheque, subtract a prorated $3,500 basic exemption from the employee’s pensionable earnings and take 5.95% for Canada Pension Plan contributions, multiply insurable earnings by 1.63% for Employment Insurance premiums, and annualize taxable income through the federal tax brackets, subtract the personal tax credit from the TD1, then divide the result back across your pay periods for federal income tax. The three deductions use different bases and different rules, so they have to be run separately for each pay period.

What You Need Before You Start

Three things drive every calculation.

First, the employee’s gross taxable income for the pay period. That includes base wages, overtime, commissions, and taxable benefits. Taxable benefits are easy to overlook: employer-provided vehicles, group life insurance premiums above a certain threshold, low-interest loans, and housing allowances all count as part of income for deduction purposes.¹ Miss one and every number that follows is off.

Second, how many pay periods fall in the calendar year. Annual limits and exemptions get prorated across that number. The common schedules are weekly (52), biweekly (26), semi-monthly (24), and monthly (12).²

Third, the employee’s completed federal TD1 Personal Tax Credits Return. The TD1 sets the claim code that shelters part of the employee’s income from federal tax. If nobody has filed one, use Claim Code 1 (the basic personal amount only). When someone hands in an updated TD1 mid-year, apply it starting the next pay period.

How to Calculate CPP

CPP contributions cover most working Canadians between 18 and 70. For 2026, the numbers you need are:

Maximum annual pensionable earnings (YMPE): $74,600
Annual basic exemption: $3,500
Employee contribution rate: 5.95%
Maximum annual employee contribution: $4,230.45

For each pay period, take the employee’s gross pensionable earnings, subtract the prorated basic exemption ($3,500 divided by the number of pay periods), and multiply the remainder by 5.95%.

Worked example. A biweekly employee earns $3,000 per period. The prorated exemption is $3,500 ÷ 26 = $134.62. Contributory earnings are $3,000 − $134.62 = $2,865.38. Multiply by 5.95% and the CPP deduction is $170.49 for the period.⁴

Track cumulative contributions across the year. Once an employee reaches $4,230.45, stop deducting base CPP for the rest of the calendar year. Over-deductions force the employee to claim a refund on their tax return.

Second-Tier CPP (CPP2) for Higher Earners

A second tier of CPP contributions applies once an employee’s year-to-date pensionable earnings pass the YMPE. For 2026, CPP2 covers earnings between $74,600 and the Year’s Additional Maximum Pensionable Earnings of $85,000.⁵ The rate is 4.00%, there is no basic exemption to subtract, and the maximum annual employee CPP2 contribution is $416.00. Employees earning under $74,600 never trigger CPP2.

Quebec Employees

If an employee’s province of employment is Quebec, you do not deduct CPP at all. Deduct Quebec Pension Plan contributions instead, at 6.30% for 2026. Employees who transfer between Quebec and another province mid-year need their QPP and CPP amounts reconciled so total contributions come out right.⁶

How to Calculate EI

EI is the simplest of the three because there’s no exemption to subtract. Multiply the employee’s gross insurable earnings for the pay period by the premium rate.

For 2026, outside Quebec:

Employee premium rate: 1.63% ($1.63 per $100 of insurable earnings)
Maximum annual insurable earnings: $68,900
Maximum annual employee premium: $1,123.07

⁷

Same biweekly employee. $3,000 × 1.63% = $48.90 for the period. Once cumulative deductions reach $1,123.07, stop for the year.

Quebec runs its own parental insurance plan, so Quebec employees pay a reduced federal EI rate and the maximum annual premium drops to $895.70.⁷

How to Calculate Federal Income Tax

Federal income tax is progressive and depends on the TD1 credits an employee claims. The CRA’s official formulas cover every edge case, but for a regular paycheque the logic runs in four steps.

Step 1: Annualize the Income

Multiply the taxable income for one pay period by the number of pay periods in the year. A biweekly employee earning $3,000 has an annualized income of $78,000 (26 × $3,000). That’s the figure you run through the brackets.

Step 2: Apply the 2026 Federal Brackets

The 2026 federal tax brackets are:⁸

15% on the first $58,523
20.5% on the portion from $58,523 to $117,045
26% on the portion above $117,045 up to the next threshold
29% on the next tier
33% on taxable income above the highest threshold

For $78,000: the first $58,523 is taxed at 15% ($8,778.45), and the remaining $19,477 at 20.5% ($3,992.79). Gross annual federal tax is $12,771.24.

Step 3: Subtract Personal Tax Credits

Every employee gets the basic personal amount. For 2026, the maximum federal basic personal amount is $16,452, with high-income earners receiving a reduced amount ($14,829 minimum).⁹ The credit itself equals the claim amount multiplied by the lowest federal rate of 15%, so the basic personal credit is about $2,468 ($16,452 × 15%).

Subtract the credit from the gross annual tax: $12,771.24 − $2,468 ≈ $10,303 in estimated annual federal tax. Employees who claim more on their TD1 (age, disability, tuition, and so on) get a larger reduction.

Step 4: Divide by Pay Periods

Divide the annual tax by the number of pay periods to land on the per-paycheque withholding. $10,303 ÷ 26 ≈ $396.27. That’s the federal income tax you withhold from that biweekly cheque.

Annualize-then-divide works cleanly for steady pay. For bonuses, commissions, or other irregular income, the CRA’s T4127 payroll formulas give specific adjustments so you don’t dramatically over-withhold in a single period.⁴

What the Employer Owes on Top

Calculating employee deductions gets you halfway. The employer share is separate.

For CPP, employers match the employee dollar for dollar. If you deducted $170.49, you owe another $170.49 as the employer. The same 1:1 match applies to CPP2. Maximum employer contributions per employee for 2026 are $4,230.45 for base CPP plus $416.00 for CPP2.³

For EI, the employer share is 1.4 times the employee premium.¹⁰ On $48.90 deducted from the employee, the employer owes $68.46.

Federal income tax has no employer match. You remit exactly what you withheld.

Tools That Do the Math For You

You don’t have to run these formulas by hand. The CRA publishes the T4032 Payroll Deductions Tables, which let you look up the correct CPP, EI, and income tax withholding by province, pay period, and income. The T4127 Payroll Deductions Formulas document contains the exact algebra used by payroll software, including rules for mid-year TD1 changes, bonuses, and retroactive pay.⁴ The CRA’s free online Payroll Deductions Online Calculator (PDOC) will produce all three amounts once you enter the employee’s pay, province, and claim code.

For the underlying rules — which payments are pensionable, insurable, or taxable in the first place — the T4001 Employers’ Guide is where to look.¹¹ When you’re not sure whether a payment triggers CPP, EI, or tax withholding, that guide is the starting point.

1
Canada Revenue Agency. Employers’ Guide – Taxable Benefits and Allowances
2
Canadian Payroll. Pay Periods and Pay Cycles
3
Canada Revenue Agency. CPP Contribution Rates, Maximums and Exemptions
4
Canada Revenue Agency. Payroll Deductions Formulas – 122nd Edition Effective January 1, 2026
5
Canada Revenue Agency. Second Additional CPP Contribution (CPP2) Rates and Maximums
6
Canada Revenue Agency. About the Deduction of Canada Pension Plan (CPP) Contribution
7
Canada Revenue Agency. EI Premium Rates and Maximums
8
Canada Revenue Agency. Tax Rates and Income Brackets for Individuals
9
Canada Revenue Agency. Payroll Deductions Tables – CPP, EI, and Income Tax
10
Government of Canada. 2026 Employment Insurance (EI) Premium Rate
11
Canada Revenue Agency. Employers’ Guide – Payroll Deductions and Remittances