How much tax is deducted from a pay stub?

If you ever look at your pay stub and think it’s smaller than you expected, don’t be alarmed. Canadian employers are required to deduct certain amounts before handing you the rest.

While some tax deductions are specific to your job, industry or province, others are automatically removed from earnings no matter where you live in the country. Typically, these deductions are relatively small, but they can add up.

Understanding your pay stub and all the deductions included can help you better anticipate and manage those expenses – and perhaps even help you secure a tax refund.

What is a pay stub?

If you’ve ever been paid by cheque, then you’re familiar with the pay stub – an extra bit of paper you can tear away to keep for your record. With more employers paying employees via electronic transfer, these documents have been digitized and are now sent via email or available online through a secure link. Your pay stub lists the total amount you’ve earned minus any deductions that have been taken for that pay period, as well as a year-to-date total of your earnings and deductions.

What types of deductions are included on a pay stub?

The tax deductions that show up on your pay stub can fall into one of two categories: those that are required by the government and those outlined in your employment contract.

Government-mandated deductions include federal and provincial taxes, as well as other federal or provincial benefits (we get into that below), depending on where you live. All the deductions that show up on your pay stub will also be reflected in your tax filings at the end of the year. If you’ve overpaid or reduced your tax burden in other ways, you could receive the difference back in the form of a tax refund.

If you’re part of a union or have health or retirement benefits through your employer, you may also see deductions for these benefits on your pay stub.

Common payroll deduction items

Many payroll deductions are universal, but some depend on the nature of your employer, benefits package or location. Here are some of the most common payroll deduction items.

Government required deductions:

• federal income tax
• provincial or territorial income tax
• Employment Insurance (EI) contributions
• Canadian Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions

Additional employer deductions:

• pension plan contributions
• union dues
• employee benefits, such as:
  • life insurance premiums
  • short- and long-term disability premiums
  • health insurance premiums
  • dental insurance premiums
  • group retirement savings plan contributions
  • charitable donations

While these are the most common payroll deductions, some employers may impose others not included in the list above.

Federal income tax

Canadians don’t all pay the same federal tax rate. Instead, the country uses a progressive or graduated rate system in which employees face a higher tax rate the more they earn.

Those higher rates, however, only apply to the funds earned within a person’s tax bracket. For example, those who earn $60,000 in 2025 will pay 14.5% on their first $57,375 and 20.5% on the remaining $2,625, not 20.5% on the entire sum.* Those who earn $160,000, meanwhile, will pay the same 14.5% on the first $57,375, 20.5% on the next $57,375 and 26% on the remaining $45,250.*

Basic personal amount

The Canadian government offers a non-refundable tax credit that all Canadians can claim, known as the basic personal amount. It exempts anyone who earns less than the designated amount from paying federal income taxes and returns the equivalent amount to the rest. For 2025, the basic personal amount is $16,129.

EI and CPP/QPP deductions

There are two deductions that every Canadian employee will see on their paycheque that aren’t tax related: EI and CPP/QPP deductions. That’s because both programs are mandatory. However, many Canadians will reap some benefits from these programs over the course of their lives.

How Employment Insurance (EI) works

Your employer is legally required to deduct a portion of your pay to contribute to the federal EI program on your behalf. The program provides a temporary income for those who need to step away from the workforce for things like parental leave, health challenges or caregiving, or to search for a new job.

This year, those eligible for EI benefits can receive up to $695 per week, or $417 for those on parental leave. The program is jointly funded by employer and employee contributions.

In 2025, employees are required to contribute 1.65% (1.31% in Quebec) of their salary, but only on the first $65,700 of income. That means the maximum EI contribution for the year would be $1,077.48 ($860.67 in Quebec). The employer contribution is 1.4 times the employee contribution, up to a maximum of $1,508.47.

How the Canadian Pension Plan (CPP) and Quebec Pension Plan (QPP) work

Like the EI program, CPP is jointly funded by employers and employees. CPP provides a monthly payment to those over 65 (you can elect to start receiving these payments as early as 60 or as late as 70) who have made CPP contributions. In 2025, both employers and employees are required to contribute 5.95% of a worker’s employment income, up to a maximum of $71,300 of income.¹ The maximum contribution is $4,034.10. There is an additional CPP contribution of 4% for income up to $81,200. The maximum additional contribution is $396.

Benefits for retirees depend on their lifetime contributions and the age they decide to start drawing those benefits. The longer you wait, the more money you’ll get per month. For those aged 65, the maximum they can receive in 2025 is $1,433 per month.

In Quebec, the equivalent to CPP is QPP, which is available to those who have worked in Quebec, and provides a monthly payment to those over 65 (you can elect to start receiving these payments as early as 60 or as late as 72) who have made QPP contributions. In 2025, both employers and employees are required to contribute 5.4% of a worker’s employment income, up to a maximum of $71,300 of earnings.¹ The maximum contribution is $3,661.20. As with CPP, there is also an additional QPP contribution of 4% for income up to $81,200, paid by both the worker and employer. The maximum additional contribution is $396.

Like CPP, your monthly QPP benefits will depend on your employment earnings and the year you elect to start receiving those benefits.

How to reduce your annual income tax bill

While the deductions you see on your pay stub will reduce what you take home on payday, that doesn’t mean that money is entirely out of your reach. There are several ways to lower your tax bill and potentially even set yourself up for a tax refund.

One popular way to lower your tax bill is by contributing to a registered account, such as an Registered Retirement Savings Plan (RRSP) or a First Home Savings Account (FHSA). Contributions to these accounts can be deducted from your taxable income, which lowers your tax bill and could result in a tax refund.

Charitable donations, childcare expenses and some health care costs can also be claimed as tax credits when you submit your annual tax return, to help lower your tax payable. If you know you’re going to incur these costs, then you may be able to apply to reduce how much tax is withheld from your paycheque by filling out and submitting a T1213 form. While this may improve your cash flow for the year, you’ll still be on the hook to pay any taxes that are not covered by the deductions from your regular pay.

To help you avoid any surprises when tax season rolls around, you can use our tax calculator to estimate the amount you’ll owe. This tool can also help you budget your earnings and explore ways to reduce your annual tax bill. If you’re looking for some extra guidance, a financial advisor can help you budget your earnings, invest in tax-efficient ways and save toward your financial goals.