How to run payroll in Canada: CPP, CPP2, EI and income tax for 2026
Open a payroll account, collect TD1s, deduct 2026 CPP, CPP2, EI and income tax, remit on the right schedule, and file T4s and ROEs, with a worked example.
8 min read · October 18, 2026
Before the first pay
- Get a business number (BN) from the CRA if you do not have one.
- Open a payroll program account, the RP account (for example 123456789 RP0001), before your first remittance is due. All source deductions are remitted to this account.
- Collect a TD1 from each employee: the federal TD1 and the provincial or territorial one for the province of employment. They set the personal tax credit amounts used in the income tax calculation. An employee who does not hand one in gets the basic personal amount only.
- Get the employee's SIN within three days of the start of employment.
- Register with your province for workers' compensation and, where it applies, provincial payroll tax such as Ontario's Employer Health Tax.
Employees working in Quebec are different: QPP and QPIP replace CPP and part of EI, and Quebec income tax is withheld for Revenu Québec, which needs its own registration.
The 2026 rates and maximums
| Deduction | Employee | Employer |
|---|---|---|
| CPP | 5.95% of earnings between $3,500 and $74,600; maximum $4,230.45 | Matches the employee |
| CPP2 | 4% of earnings between $74,600 and $85,000; maximum $416.00 | Matches the employee |
| EI | 1.63% of insurable earnings up to $68,900; maximum $1,123.07 (Quebec 1.30%) | 1.4 times the employee premium |
| Federal income tax | 14% on the first $58,523 of taxable income, rising to 33%; basic personal amount up to $16,452 | None |
| Provincial income tax | Each province's own brackets and credits | None |
The $3,500 CPP basic exemption is spread across pay periods: $3,500 ÷ 26 = $134.62 per biweekly pay. CPP2 only starts once an employee's earnings for the year pass $74,600, so most small-business employees never reach it. Once an employee hits a yearly maximum, stop deducting that item for the rest of the year.
A worked example
An employee in Ontario earns $2,000 every two weeks (26 pays):
| Line | Working | Employee | Employer |
|---|---|---|---|
| CPP | ($2,000 − $134.62) × 5.95% | $110.99 | $110.99 |
| CPP2 | Year-to-date earnings below $74,600 | $0.00 | $0.00 |
| EI | $2,000 × 1.63%; employer × 1.4 | $32.60 | $45.64 |
| Income tax | Federal and Ontario, from the CRA formulas and the TD1 amounts | Calculated | None |
Income tax is worked out with the CRA's Payroll Deductions Formulas (T4127) or its online calculator. It depends on the TD1 claim amounts and the province, so it is the one figure you should not try to do by hand. Our free Canadian payroll calculator runs the same 2026 formulas.
Your remittance for this pay is the employee deductions plus the employer's CPP and EI: here $110.99 + $32.60 + $110.99 + $45.64 = $300.22, plus the income tax withheld.
Remitting to the CRA
The CRA assigns your remitter type from your average monthly withholding amount (AMWA) two calendar years ago. The CRA tells you which type you are.
| Remitter type | Who | Due |
|---|---|---|
| Quarterly | New employers withholding under $1,000 a month, or existing employers with AMWA under $3,000, with a perfect compliance record | April 15, July 15, October 15, January 15 |
| Regular | Most new and small employers; AMWA under $25,000 | 15th of the month after the pay |
| Accelerated, threshold 1 | AMWA $25,000 to $99,999.99 | Pays on the 1st to 15th by the 25th; pays on the 16th to month-end by the 10th of the next month |
| Accelerated, threshold 2 | AMWA $100,000 or more | Within 3 working days after the end of each of four periods in the month, through a Canadian financial institution |
"Perfect compliance" means no late remittances, no late T4-type returns and nothing overdue on your GST/HST account in the last 12 months. Remit on time even in a quiet month; late remittances attract penalties and cost you quarterly status.
T4s and Records of Employment
- T4 slips and the T4 Summary for 2026 are due by March 1, 2027 (February 28 is a Sunday). The Summary's totals must agree with the year's remittances. Dates, the electronic filing rule and penalties are in T4 and T4A slips for 2026.
- Record of Employment (ROE): when an employee stops working, goes on leave or has an interruption of earnings (seven consecutive days with no work and no insurable earnings), you issue an ROE to Service Canada. Filed electronically, it is generally due within five calendar days after the end of the pay period in which the interruption happened. Monthly and 13-period payrolls have a stricter rule.
Keep a simple routine: run the pay, check the deductions against the yearly maximums, record the liability, remit by the due date. For owner-managers paying themselves, taxable benefits or employees in more than one province, check with your accountant.
Canadian payroll from the CRA formulas
AcboBooks calculates CPP, CPP2, EI and federal and provincial income tax from the CRA's 2026 formulas, tracks the yearly maximums, and totals PD7A remittances and T4 slips.
This article is general information, not tax, legal or accounting advice. Rules and dates change; check the official source or ask your accountant before acting.