Every time you run payroll, you’re doing more than paying salaries. You’re also handling payroll taxes that need to be calculated, matched, and sent to the Canada Revenue Agency (CRA).

Payroll taxes are one of the most common sources of confusion for employers, especially as deductions, contribution rates, and provincial requirements change year to year.

Understanding what payroll taxes work can make each pay run feel more manageable. This guide breaks down what payroll taxes are, how they’re calculated, who pays them, and what you need to know to stay compliant and keep your business running smoothly.

Table of Contents:

• What are payroll taxes?
• Who pays payroll taxes?
• Employer responsibilities for payroll taxes
• Types of payroll taxes in Canada
• What is the difference between payroll tax and income tax?
• How to calculate payroll taxes
• Payroll taxes by province
• Filing and remittance deadlines
• Penalties for non-compliance
• Tips for managing payroll taxes efficiently
• Frequently asked questions

What are payroll taxes?

Payroll taxes are mandatory deductions and employer contributions that fund government programs such as the Canada Pension Plan (CPP), Employment Insurance (EI), and income tax.

If you're wondering what are payroll taxes in day-to-day business terms, think of them as the deductions you withhold and the amounts you contribute as an employer.

These deductions and contributions are not optional. If you have employees, you are legally required to withhold certain amounts from each paycheque and remit them to the CRA, along with your employer contributions.

Most Canadian pay stubs include these payroll taxes:

• Canada Pension Plan (CPP) payroll deductions: Employees contribute a percentage of pensionable earnings, and employers match that amount. For 2026, the CPP rate (outside Quebec) is 5.95%, with annual maximums set by the CRA.
• Employment Insurance (EI) deductions and premiums: Employees contribute a set percentage of insurable earnings. Employers contribute 1.4 times the employee rate.
• Federal and provincial/territorial income tax: Withheld at source using CRA payroll deduction tables.

Each paycheque triggers payroll tax obligations, including employee deductions and employer contributions.

All of these amounts have to be calculated correctly, matched where required, and sent to the CRA on time.

When you can answer the questions "what are payroll taxes?" and "how do I calculate them for my team?", you're well on your way to avoiding errors and late remittances.

Who pays payroll taxes?

When most people ask who pays payroll taxes, they expect the answer to be either employers or employees. In reality, both do, just not in the same way.

How payroll taxes typically work:

• Employees pay CPP (or QPP in Quebec), EI, and income tax through deductions on each paycheque.
• Employers match CPP contributions, pay 1.4 times the employee's EI premium, and remit all deductions to the CRA.
• In some provinces, employers also pay additional payroll-based taxes, such as Employer Health Tax (EHT) or contributions to provincial funds.

As a business owner, you're responsible for withholding the correct amounts and remitting both the employee and employer portions. The CRA considers these amounts trust funds, not business income.

Clear communication helps here. When employees understand what's on their pay stub, it reduces questions and builds confidence in your payroll process.

Payroll taxes vs. income taxes: What's the difference?

It's easy to see payroll taxes and income taxes side by side on a pay stub and assume they're the same thing. They're not.

Payroll taxes and income taxes are both deducted from an employee's pay, but they serve different purposes.

Payroll taxes vs. income taxes in simple terms:

• Payroll taxes: These include CPP and EI contributions. They fund specific government programs, and employers must match certain portions, such as CPP and EI.
• Income tax: The employee's personal income tax, withheld at source based on their earnings and tax brackets, then remitted to the CRA on their behalf.

While payroll taxes and income tax appear on the same pay stub, payroll taxes represent program-based contributions with employer involvement. Income tax reflects the employee's personal tax obligation.

How is payroll tax calculated in Canada?

Payroll tax calculations are not the same for every employee. Each employee's income, deductions, and province can change the numbers slightly.

Put simply, payroll tax is calculated using this formula:

Payroll tax = Federal income tax + Provincial income tax + CPP + EI

If you're curious how to use this formula when you calculate payroll, it helps to walk through a practical example.

Let's say you have an employee in Ontario earning $60,000 per year, paid monthly. Here are the steps you should follow when you calculate your payroll:

Step 1: Determine gross pay

$60,000 annually = $5,000 per month.

Step 2: Calculate employee deductions

Using current CRA rates:

• CPP (5.95% up to annual maximum): Applied to pensionable earnings.
• EI (1.63% in 2026, outside Quebec): Applied to insurable earnings.
• Federal and Ontario income tax: Calculated using CRA payroll deduction tables.

Step 3: Add employer contributions

• CPP match: You contribute the same CPP amount as the employee.
• EI match: You contribute 1.4 times the employee's EI premium.

Step 4: Account for provincial requirements

In Ontario, Employer Health Tax (EHT) may apply depending on total annual payroll.

If you're planning to calculate payroll taxes for your team manually, using up-to-date CRA guidance from the Employers' Guide – Payroll Deductions and Remittances is essential.

What are payroll tax requirements by province?

Payroll taxes vary depending on where your employees work. Some provinces impose additional employer payroll taxes based on total payroll:

• Ontario: Employer Health Tax (EHT) applies once payroll exceeds exemption thresholds.
• Quebec: Employers in Quebec contribute to the Quebec Pension Plan (QPP), Quebec Parental Insurance Plan (QPIP), and the Health Services Fund (HSF).
• British Columbia: Employer Health Tax applies above certain payroll levels.
• Manitoba: Health and Post-Secondary Education Tax Levy applies based on payroll size.
• Other provinces: Alberta and Saskatchewan do not impose separate provincial payroll taxes, but federal requirements still apply.

If you operate in multiple provinces, you may need to manage different payroll tax rules for each location.

Employer responsibilities for payroll tax compliance

Payroll tax compliance is a statutory requirement. As an employer, you are legally responsible for withholding, matching, remitting, and reporting.

Employer responsibilities include:

• Registering with the CRA: Open a payroll account before issuing your first paycheque.
• Withholding accurate amounts: Use current CRA tables or approved software.
• Remitting on time: Send employee and employer portions to the CRA by your assigned deadline.
• Filing T4 slips and summaries: Provide accurate year-end reporting.
• Maintaining records: Keep detailed payroll records for at least 6 years.

When you hire employees, you're required to remit the payroll deductions you withhold to the CRA. The schedule for making those payments is called your remitter type.

The CRA assigns your remitter type based on how much payroll you run and your past payment history. If you're unsure how to pay payroll taxes, your remitter type determines how often those amounts must be remitted.

Remitter types:

• Regular remitter: You send payroll deductions once a month. Payment is due by the 15th of the month after you pay your employees.
• Quarterly remitter: If your payroll is smaller and you meet CRA criteria, you may qualify to send payments once every 3 months.
• Accelerated remitter: If your payroll is larger, you must send payments more often, usually twice a month or even weekly.

If you miss a deadline, the CRA can charge penalties of up to 10% of the unpaid amount. Interest also starts adding up daily until the balance is paid.

Common payroll tax mistakes to avoid

Payroll mistakes happen. Most are small. Some can become expensive.

When payroll deductions are involved, even a single missed deadline or incorrect percentage can trigger penalties. The CRA can assess penalties of up to 10% of unpaid amounts, and interest starts accruing daily.

6 common payroll tax mistakes to avoid:

1. Missing remittance deadlines: Payments are due by the 15th of the following month for most regular remitters. Late payments can trigger penalties and interest.
2. Incorrect CPP or EI matching: Employers must match CPP contributions at 5.95% (outside Quebec) and contribute 1.4× the employee's EI premium. Errors here are easy to spot in audits.
3. Using outdated CRA rates: Contribution rates and annual maximums can change each year. Using last year's rates can lead to under- or over-remitting.
4. Misclassifying workers: Treating an employee as a contractor can shift payroll tax obligations and create compliance risk.
5. Omitting taxable benefits: Certain benefits, such as allowances or personal-use perks, may need to be included in income and subject to deductions.
6. Treating deductions as business revenue: Withheld amounts belong to the CRA. They are not operating cash.

Reviewing CRA updates at least once a year and confirming your payroll settings can help reduce the risk of corrections later.

Tips for managing payroll taxes efficiently

Payroll becomes more complex as teams grow and responsibilities spread across finance, HR, and operations.

How to stay organized and manage payroll taxes effectively:

• Automate calculations: Use payroll tools that apply current income tax, CPP, and EI rates.
• Track deadlines: Set reminders aligned with your remitter type.
• Centralize reporting: Generate T4 slips and summaries directly from your payroll system.
• Review provincial rules: Stay current with CRA updates and tax changes affecting payroll, especially if you operate in multiple provinces.
• Work with a professional: Consult accountants or bookkeepers for complex payroll issues.

With the right tools, you can simplify the process of managing payroll taxes and stay compliant.

Using a top-rated solution like QuickBooks Payroll can help you automatically calculate, track, and remit payroll taxes in one place, giving you more time to focus on growing your business.

Start simplifying your payroll tax management today

Understanding what payroll taxes are and how they apply to your business is a good place to start. Once you have a handle on how they're calculated, when they're due, and who needs to remit them, payroll usually becomes more manageable.

Payroll software can help reduce manual work and keep your records in line with CRA requirements. With the right tools in place now, you can make future pay runs smoother and more predictable.

Explore how QuickBooks Payroll helps growing businesses manage payroll and stay compliant year-round.