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

The CRA's published 2026 CPP figures are final for the year:

• 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, under the CPP enhancement rules. There is no basic exemption applied a second time.
• Contributions generally start the month after an employee turns 18 and end after the month they turn 70. An employee aged at least 65 but under 70 who receives a CPP or QPP retirement pension can elect to stop by giving the employer a completed CPT30 and sending the original to CRA. Age alone does not qualify: see CRA's election conditions.
• Employers must match each employee's contribution dollar for dollar on both the base and CPP2 portions.
• Distinguish over-deducting a worker's CPP from paying CRA too much. PD24 can recover eligible employer contributions after an over-deduction; an account overpayment follows CRA's separate remittance-correction process.

Example

An employee subject to CPP for all twelve months earns a $90,000 salary from one employer in 2026. There is no election to stop contributions.

1. First-tier contributory earnings: $74,600 − $3,500 = $71,100. Employee contributes $71,100 × 5.95% = $4,230.45.
2. CPP2 pensionable earnings: $85,000 − $74,600 = $10,400. Employee contributes $10,400 × 4.00% = $416.00.
3. Total employee CPP: $4,646.45. The employer matches $4,646.45, making $9,292.90 combined.

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 and employer amount, credits the other payroll deductions payable, and credits Cash for net pay.

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 $74,600.
• Treating a shareholder-employee as exempt. Owner-employees are pensionable just like any other worker.
• Failing to implement a valid CPT30 election from the first pay in the month after the employer receives it. Retain the form and verify CRA's effective-date rules.
• Continuing regular deductions after the employee reaches the annual maximum or is no longer subject to CPP. Check CRA's correction process rather than treating an overpayment as next year's contribution.

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).