Understanding pay stub deductions is not so hard. Deductions on your paycheque are the amounts that an employee pays to cover mandatory and non-mandatory employment expenses. Since there are a number of these types of deductions, we’ve compiled a comprehensive list of deduction types that are commonly used in payroll (please note there could be more deductions added, the ones in this list are mandated by the government):
Federal Income Tax: Calculate the amount of federal income tax to deduct from your earnings. The tax system in Canada is ‘progressive’. This means that the more income earned, the higher percentage of income will go toward taxes. The following are the federal tax rates for 2021, according to the Canada Revenue Agency (CRA):
-15% on the first $49,020 of taxable income, and
-20.5% on the portion of taxable income over $49,020 up to $98,040 and
-26% on the portion of taxable income over $98,040 up to $151,978 and
-29% on the portion of taxable income over $151,978 up to $216,511 and
-33% of taxable income over $216,511
Provincial Income Tax: You will also calculate the amount of provincial income tax to deduct from employee earnings. This amount will be lower than the federal tax and is different in each province.
Canada Pension Plan (CPP): For those 18 years old and over, it is mandatory for a . 4.95% deduction from gross earnings over $3,500 until the maximum annual pensionable earnings is reached. The 2021 maximum is $61,600.
Employment Insurance (EI): 1.78% is deducted from gross earnings until the maximum contribution is reached. The maximum annual insurable earning for 2021 is $56,300.
Unsure of how much you have to deduct from your employees paycheque? Try our payroll calculator for an accurate result every time.