CPP Contributions

Definition

The Canada Pension Plan (CPP) is a mandatory federal contributory retirement program. Employers and employees each pay a portion of pensionable earnings to CRA, and the self-employed pay both halves themselves. CPP contributions accumulate contribution credits that determine future retirement, disability, and survivor benefits. Quebec operates its own parallel plan (QPP) at different rates for employees reporting to a Quebec establishment.

Key rules

2026 parameters (confirm final values in CRA's annual release):

• The first-tier contribution applies to earnings above the $3,500 basic exemption and up to the YMPE, as per CPP Act s.8.
• The second-tier CPP2 enhancement applies to earnings between YMPE and YAMPE, per CPP Act s.11.1. There is no basic exemption applied a second time.
• Contributions start the month after an employee turns 18. Employees aged 65 to 70 can elect out by filing form CPT30, and contributions stop at age 70.
• Employers must match each employee's contribution dollar for dollar on both the base and CPP2 portions.
• Over-remittances in a calendar year can be refunded by filing a PD24 for the employer share, or claimed on the employee's T1.

Example

An employee earns a $90,000 annual salary in 2026.

1. Base CPP pensionable earnings: $73,200 − $3,500 = $69,700. Employee contributes $69,700 × 5.95% = $4,147.15.
2. CPP2 pensionable earnings: $81,200 − $73,200 = $8,000. Employee contributes $8,000 × 4.00% = $320.00.
3. Total employee CPP for the year: $4,467.15. Employer matches: $4,467.15. Combined cash to CRA for CPP alone: $8,934.30.

On the journal side each pay period, the employer debits Salaries Expense for gross wages, debits CPP Expense for the employer share, credits CPP Payable for the combined employee plus employer amount, and credits Cash for net pay to the employee.

Common mistakes

• Forgetting to apply the $3,500 basic exemption pro-rata across pay periods, which over-withholds on early cheques.
• Missing the CPP2 tier. A corporation that pays a working shareholder a $90,000 salary must now withhold and match CPP2 on the band above $73,200.
• Treating a shareholder-employee as exempt. Owner-employees are pensionable just like any other worker.
• Failing to stop contributions after a CPT30 election at age 65 or older.
• Allowing CPP to continue past age 70, which CRA will refund but only after a PD24 filing.

Related concepts

CPP is one leg of the mandatory source-deduction package alongside EI premiums and income tax withholding. All three are reported on the T4 slip and remitted with a PD7A voucher. For the broader payroll setup, see payroll account (RP).