CRA & Revenu Québec, Credits & Deductions, Forms & Schedules, Getting Organized, Tax Basics, Tips & Advice

Tax Tip: What is Deducted from Your Paycheque?

The amounts deducted from your pay depends on your employment situation. You may be receiving a straight pay cheque with the standard deductions of CPP, EI and tax taken off (explained later), you may have received other payments in addition to your regular pay, or you maybe be employed in a special employment situation.

The section on Special payments is quite significant, and includes items such as;

  • Casual Employment – Other than your usual trade or business and even if there is a contract of employment – No CPP, EI or Tax to be deducted
  • Advances – CPP, EI and Tax are all to be deducted
  • Incentive Payments – CPP, EI and Tax to be deducted
  • Overtime Pay – CPP, EI and Tax to be deducted
  • Sick Leave, including amounts received while on sick leave – CPP, EI and Tax to be deducted
  • Tips and Gratuities – controlled by employer – CPP, EI and Tax to be deducted
  • Tips and Gratuities – received directly – No deductions required.
  • Wages including Wages in Lieu of Termination – CPP, EI and Tax to be deducted.

If any of those situations apply to you, then you might want to check the chart to see if CPP, EI, or income tax should have been deducted by your employer or by whomever paid you during the year.

Standard Deductions – CPP, EI & Income Tax

Canada Pension Plan (CPP) contributions

If you between the age of 18-64 and employed in “pensionable” employment (generally within Canada), and you do not receive a CPP retirement or disability pension, your employer will deduct CPP contributions from your pay, match that amount, and remit it to the CRA.

If you are between the age of 65 to 69 and work while receiving a CPP or QPP (for Quebec residents) retirement pension, your employer will continue to deduct CPP contributions from your pay, unless you elect to stop paying CPP contributions. You cannot elect to stop contributing to the CPP until you are at least 65 years of age.

What is the CPP: The CPP provides basic benefits when you, as a contributor to the plan, become disabled or retires. In the event of your death, the plan provides benefits to your survivors.

Employment Insurance (EI) premium

If you are employed in “insurable” employment, regardless of your age, your employer will deduct EI premiums from your pay (QPIP for Quebec employees), and remit that amount along with their amount to the CRA.

When you pay into the Employment Insurance program, you are then entitled to apply to receive EI payments while unemployed and looking for work or if you’re upgrading your skills. You are eligible to apply for EI is any of the following situations:

  • Sickness
  • Pregnancy
  • Caring for a newborn or adopted child
  • Caring for a seriously ill family member with a significant risk of death

Income Tax

If you receive employment income or any other type of income, your employer or payer will deduct income tax at source from the amount paid.

Your employer or payer will calculate how much income tax to deduct by referring to your total claim amount on Form TD1, Personal Tax Credits Return and using approved calculation methods.

There is no annual limit as to the total amount of income tax your employer or payer can deduct in a year.

Other Deductions

There may be other amounts deducted from your pay, by your employer, and the total of those amounts will appear on your T4 slip.

Some of the items which could be deducted includes, but is not limited to;

  • Charitable donations
  • Long Term Disability
  • Pension
  • Joint memberships
  • Dental premiums
  • Group Life Insurance
  • Employee Paid Extended Health premiums

What Happens to the Deductions?

The amounts deducted from your pay, are applied to your tax account and kept track of by the CRA.  The taxes withheld are essentially a prepayment of your income taxes for the year (if you only had T4 employment income).