Payroll Deductions Formulas - 120th Edition (Upcoming changes) Effective January 1, 2025
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Payroll Deductions Formulas - 120th Edition (Upcoming changes) Effective January 1, 2025
T4127(E) Rev. 25 (24/07)
Please note that a full version of the guide will be released in November.
La version française de cette publication est intitulée Formules pour le calcul des retenues sur la paie – 120e édition (Changements à venir).
On this page
- What’s new for January 1, 2025?
- Chapter 1 – General information
- Chapter 2 – Personal tax credits returns (Form TD1)
- Chapter 3 – Glossary
- Chapter 4 – Option 1 – Tax Formulas
- Chapter 5 – Option 2 – Tax formulas based on cumulative averaging
- Chapter 6 – Canada Pension Plan (CPP)
- Chapter 7 – Employment Insurance (EI)
- Chapter 8 – Rates and amounts
Is this guide for you?
Use this guide if you are a payroll software provider or a company which develops its own in-house payroll solution.
This guide has the formulas you need to determine federal, provincial (except Quebec), and territorial income taxes, Canada Pension Plan (CPP) contributions, and employment insurance (EI) premium deductions. The formulas also let you calculate payroll deductions for income sources such as commission, pension, bonuses, and retroactive pay increases.
The formulas used in this guide to calculate statutory deductions have been approved for purposes of the Income Tax Act, the Canada Pension Plan, and the Employment Insurance Act, as well as their related regulations and any amendments proposed to these acts.
For more information on income amounts that are subject to payroll deductions, see the publication T4001, Employers’ Guide – Payroll Deductions and Remittances.
If you have questions about the formulas in this guide, contact your tax services office or tax centre. For the address and telephone numbers of your tax services office or tax centre, see the listings in the government section of your telephone book or visit canada.ca/taxes.
Distribution of this guide
This guide is available in electronic format only.
Electronic mailing lists – more ways to serve you!
We provide an electronic service that can notify you immediately, free of charge, of any changes for payroll deductions.
To subscribe, go to canada.ca/cra-email-lists and enter your business’s email address for each mailing list that you want to join.
Payroll Deductions Online Calculator
You can use the Payroll Deductions Online Calculator (PDOC) to verify your payroll deductions in the most commonly occurring situations. The formulas provided in this guide produce results that are generally more precise than those obtained by using PDOC.
The calculator includes an option to help you make sure that enough CPP contributions and EI premiums have been withheld for employees that are employed for the full year.
It calculates payroll deductions for the most common pay periods, as well as the deductions for the applicable province (except Quebec) or territory. The calculation is based on exact salary figures.
The salary and the commission streams on PDOC will be updated to reflect the changes related to the second additional Canada Pension Plan (CPP2) contributions.
PDOC is available at canada.ca/pdoc.
Payroll Deductions Tables
The tax deductions for CPP additional contributions are imbedded in the tables. The users are not required to take any additional steps to include these deductions.
You can choose to print only the pages or information that you need. For more information on payroll, see our webpage at canada.ca/payroll.
What’s new for January 1, 2025?
This guide reflects some income tax changes recently announced which, if enacted as proposed, would be effective January 1, 2025. We recommend that you use the PDOC, the publication T4032 Payroll Deductions Tables, or the publication T4008 Payroll Deductions Supplementary Tables, and the formulas in this guide for withholding, starting with your first payroll in 2025.
Federal Changes
Below are the federal tax changes effective January 1, 2025, that are known at the time of publishing.
Second additional Canada Pension Plan (CPP2) contributions
As per Canada Pension Plan Regulations Subsection 5.1 (1), for the year 2024 and each subsequent year, pensionable earnings between the Year’s Maximum Pensionable Earnings (YMPE) and a second earnings ceiling, referred to as the Year’s Additional Maximum Pensionable Earnings (YAMPE), are subject to CPP2 contributions.
Starting 2025, the YAMPE will be approximately 14% above the YMPE changing from approximately 7% in 2024.
Provincial and Territorial Changes
Below are the provincial and territorial tax changes effective January 1, 2025, that are known at the time of publishing.
Manitoba
On April 2, 2024, the province of Manitoba announced that starting in 2025, Manitoba basic personal amount (BPAMB) will be gradually reduced for individuals with net income between $200,000 and $400,000. The BPAMB will be reduced to zero for individuals earning a net income of $400,000 and above.
Nova Scotia
For 2025 and subsequent taxation years, the Nova Scotia budget proposes to introduce annual indexing to the provincial personal income tax system impacting the income tax brackets and certain non-refundable tax credits including the basic personal amount, the spouse or common-law partner amount, the amount for an eligible dependant, the age amount, and the amount for infirm dependants age 18 or older.
Prince Edward Island
Effective January 1, 2025, the legislated Prince Edward Island basic personal amount will increase from $13,500 to $14,250. The tax brackets and tax rates will be adjusted as follows:
- for income under $33,328, the tax rate is 9.50%
- for income from $33,328 to $64,656, the tax rate is 13.47%
- for income from $64,656 to $105,000, the tax rate is 16.60%
- for income from $105,000 to $140,000, the tax rate is 17.62%
- for income of $140,000 and over, the tax rate is 19.00%
Chapter 1 – General information
As there are no known updates to the general information at this time, this section has not been reproduced.
Chapter 2 – Personal tax credits returns (Form TD1)
Only the sections pertaining to changes effective January 1, 2025, have been reproduced.
Option 1 – Indexing of Personal Amounts
Each year, certain personal tax credit amounts are indexed based on changes to the Consumer Price Index (CPI). Since only some of the amounts are indexed, we recommend that you record separately in your payroll records each item shown on the employee’s or pensioner’s TD1 form. This will allow you to automatically increase the applicable indexed claim amounts when necessary. This also means you will not have to ask your employees or pensioners to file a new TD1 form when indexing applies.
You can use the following method to calculate the value of TC or TCP (personal tax credits amount) when indexing applies:
Description
Amount
1. Enter the total claim amount reported on Form TD1
2. Minus: Any pension income amount, tuition fees, and full-time or part-time education amounts claimed on Form TD1*
3. Amount subject to annual indexing (line 1 minus line 2)
4. Enter the indexing factor that applies for the year**
×
5. Multiply line 3 by line 4 (rounded to the nearest dollar)
6. Enter the amount from line 2 (non-indexed amounts)
7. Revised factor TC or TCP (total of personal tax credits amounts) (line 5 plus line 6)
* For Ontario only, do not include any amounts on line 2, since all Ontario credits are indexed.
** Yukon personal amounts are not directly attributable to indexing, because they have harmonized amounts with the federal values.
If no Form TD1 is on file for the employee or pensioner, use BPAF, BPAMB, BPANS, BPAYT dynamic formula at the end of this chapter. If the BPAF, BPANS, BPAYT formulas were previously implemented on your payroll system, you can continue to use these formulas.
No indexing applies to Prince Edward Island.
Manitoba Basic Personal Amount (BPAMB) Formula
The formula below uses 2024 numbers for illustration purposes.
Where NI* ≤ $200,000, BPAMB = $15,780
Where $200,000 < NI* < $400,000, BPAMB** = $15,780 - (NI* - $200,000) × ($15,780 / $200,000)***
Where NI* ≥ $400,000, BPAMB = $0
* For Manitoba, NI = A.
** If the BPAMB has three or more digits after the decimal point, increase the second digit after the decimal point by one if the third digit is five or more, and drop the third digit. If the third digit after the decimal point is less than five, drop the third digit.
*** Note that there is no rounding on this division.
Chapter 3 – Glossary
Table 3.1 Glossary
| Factor | Meaning (for complete details, see the formulas) |
|---|---|
| A | Annual taxable income |
| B | Gross bonus, retroactive pay increase, vacation pay when vacation is not taken, accumulated overtime payment or other non-periodic payment |
| B1 | Gross bonuses, retroactive pay increases, vacation pay when vacation is not taken, accumulated overtime payments or other non-periodic payments year-to-date (before the pay period) |
| BPAF | Federal Basic Personal Amount |
| BPAMB | Basic Personal Amount for Manitoba |
| BPANS | Basic Personal Amount for Nova Scotia |
| BPAYT | Basic Personal Amount for Yukon |
| C | Canada (or Quebec) Pension Plan contributions for the pay period |
| C2 | Second additional Canada (or Quebec) Pension Plan contributions for the pay period |
| CEA | Canada Employment Amount, a non-refundable tax credit used in the calculation for K4 and K4P |
| D | Employee’s year-to-date (before the pay period) Canada Pension Plan contribution with the employer |
| DQ | Employee’s year-to-date (before the pay period) Quebec Pension Plan contribution with the employer |
| D1 | Employee’s year-to-date (before the pay period) employment insurance premium with the employer |
| D2 | Employee’s year-to-date (before the pay period) second additional Canada Pension Plan contribution with the employer |
| D2Q | Employee’s year-to-date (before the pay period) second additional Quebec Pension Plan contribution with the employer |
| E | Total commission expenses deductions reported on Form TD1X |
| EI | Employment insurance premiums for the pay period |
| F | Payroll deductions for the pay period for employee contributions to a registered pension plan (RPP) for current and past services, a registered retirement savings plan (RRSP), to a pooled registered pension plan (PRPP), or a retirement compensation arrangement (RCA). For tax deduction purposes, employers can deduct amounts contributed to an RPP, RRSP, PRPP, or RCA by or on behalf of an employee to determine the employee's taxable income |
| F1 | Annual deductions such as child care expenses and support payments requested by an employee or pensioner and authorized by a tax services office or tax centre |
| F2 | Alimony or maintenance payments required by a legal document dated before May 1, 1997, to be payroll-deducted authorized by a tax services office or tax centre |
| F3 | Employee registered pension plan or registered retirement savings plan contributions deducted from the current non-periodic payment. You can also use this field or design another to apply other tax-deductible amounts to the non-periodic payment, such as union dues |
| F4 | Employee registered pension plan or registered retirement savings plan contributions deducted from the year-to-date non-periodic payments. You can also use this field or design another to apply other tax-deductible amounts to the non-periodic payment, such as union dues |
| F5 | Deductions for Canada Pension Plan additional contributions for the pay period |
| F5A | Deductions for Canada (or Quebec) Pension Plan additional contributions for the pay period deducted from the periodic income |
| F5B | Deductions for Canada (or Quebec) Pension Plan additional contributions for the pay period deducted from the non-periodic payment |
| F5Q | Deductions for Quebec Pension Plan additional contributions for the pay period |
| G | Gross commission amount including gross salary at the time of payment, plus any taxable benefits for commission-remunerated employees who have filled out Form TD1X. When an employee has not filed Form TD1X, tax is calculated the regular way |
| HD | Annual deduction for living in a prescribed zone, as shown on Form TD1 |
| I | Gross remuneration for the pay period. This includes overtime earned and paid in the same pay period, pension income, qualified pension income, and taxable benefits, but does not include bonuses, retroactive pay increases, or other non-periodic payments |
| I1 | Total remuneration for the year reported on Form TD1X. This includes commission payments, salary (where applicable), non-periodic payments, and taxable benefits |
| IE | Insurable earnings for the pay period including insurable taxable benefits, bonuses, and retroactive pay increases |
| K | Federal constant. The constant is the tax overcharged when applying the 20.5%, 26%, 29%, and 33% rates to the annual taxable income A |
| KP | Provincial or territorial constant |
| K1 | Federal non-refundable personal tax credit (the lowest federal tax rate is used to calculate this credit) |
| K1P | Provincial or territorial non-refundable personal tax credit (the lowest tax rate of the province or territory is used to calculate this credit) |
| K2 | Base Canada Pension Plan contributions and employment insurance premiums federal tax credits for the year (the lowest federal tax rate is used to calculate this credit). Note: If an employee has already contributed the maximum CPP and EI, for the year with the employer, use the maximum base CPP contribution and the maximum EI premium to calculate the credit for the rest of the year. If, during the pay period in which the employee reaches the maximum, the CPP and EI, when annualized, is less than the annual maximum, use the maximum base CPP contribution and the maximum EI premium in that pay period |
| K2P | Provincial or territorial base Canada Pension Plan contributions and employment insurance premiums tax credits for the year (the lowest provincial or territorial tax rate is used to calculate this credit). If an employee reaches the maximum CPP or EI for the year with an employer, the instructions in the note for the K2 factor also apply to the K2P factor. For employees paid by commission, use the federal K2 formula for commissions and replace the lowest federal rate in the K2 formula with the lowest provincial or territorial tax rate |
| K2Q | Base Quebec Pension Plan contributions, employment insurance premiums, and Quebec Parental Insurance Plan premiums federal tax credits for the year (the lowest federal tax rate is used to calculate this credit) |
| K2R | Base Canada Pension Plan contributions and employment insurance premiums tax credits for the year (the lowest federal tax rate is used to calculate this credit), for employees that are transferred from Quebec to a location outside Quebec. The term “location outside Quebec” refers to a province or territory outside Quebec |
| K2RQ | Base Quebec Pension Plan contributions, employment insurance premiums, and Quebec Parental Insurance Plan premiums federal tax credits for the year (the lowest federal tax rate is used to calculate this credit), for employees that are transferred to Quebec from a location outside Quebec. The term “location outside Quebec” refers to a province or territory outside Quebec |
| K3 | Other federal non-refundable tax credits (such as medical expenses and charitable donations) authorized by a tax services office or tax centre |
| K3P | Other provincial or territorial non-refundable tax credits (such as medical expenses and charitable donations) authorized by a tax services office or tax centre |
| K4 | Federal non-refundable tax credit calculated using the Canada employment amount (the lowest federal tax rate is used to calculate this credit) |
| K4P | Territorial non-refundable tax credit calculated using the provincial or territorial Canada employment amount (the lowest territorial tax rate is used to calculate this credit) |
| L | Additional tax deductions for the pay period requested by the employee or pensioner as shown on Form TD1 |
| LCF | Federal labour-sponsored funds tax credit |
| LCP | Provincial or territorial labour-sponsored funds tax credit |
| M | Accumulated federal and provincial or territorial tax deductions (if any) to the end of the last pay period |
| M1 | Year-to-date tax deducted on all payments included in B1 |
| N | The number of days in the current year since the last payment. The minimum basic exemption amount of $67.30 is included in the formula in line with CPP legislation |
| NI | Net income for the year from the employer |
| P | The number of pay periods in the year |
| PI | Pensionable earnings for the pay period, or the gross income plus any taxable benefits for the pay period, including bonuses and retroactive pay increases where applicable |
| PM | The total number of months during which CPP and/or QPP contributions are required to be deducted (used in the proration of maximum contribution). For detailed information and examples, refer to T4001 Employers’ Guide – Payroll Deductions and Remittances. |
| PR | The number of pay periods left in the year (including the current pay period) |
| R | Federal tax rate that applies to the annual taxable income A |
| S | Provincial tax reduction (only applies to Ontario and British Columbia) |
| S1 | Annualizing factor |
| S2 | Basic amount used in the calculation of Factor S (only applies to Ontario and British Columbia) |
| T | Estimated federal and provincial or territorial tax deductions for the pay period |
| T1 | Annual federal tax deduction |
| T2 | Annual provincial or territorial tax deduction (except Quebec) |
| T3 | Annual basic federal tax |
| T4 | Annual basic provincial or territorial tax |
| TB | Tax deductions, i.e., bonuses or retroactive pay increases, payable now |
| TC | “Total claim amount,” reported on federal Form TD1. If Form TD1 is not filed by the employee or pensioner, calculate TC using BPAF formula, and for non-resident individuals, TC is $0. If the claim code is E, T = $0. If the province is Ontario, even if the claim code is E, the Ontario Health Premium is payable on annual income over $20,000 |
| TCP | "Total claim amount," reported on the provincial or territorial Form TD1. If this form is not filed, TCP is the provincial or territorial basic personal amount, refer to Table 8.2. For Nova Scotia and Yukon, use BPANS and BPAYT formulas respectively. |
| U1 | Union dues for the pay period paid to a trade union, an association of public servants, or dues required under the law of a province to a parity or advisory committee or similar body |
| V | Provincial or territorial tax rate for the year (does not apply to Quebec, outside Canada, or in Canada beyond the limits of any province or territory) |
| V1 | Provincial surtax calculated on the basic provincial tax (only applies to Ontario) |
| V2 | Additional tax calculated on taxable income (only applies to the Ontario Health Premium) |
| W | The greater of year-to-date (before the pay period) pensionable earnings (PIYTD or GYTD) and employee’s Year’s Maximum Pensionable Earnings (YMPE). This is used to calculate Factor C2 |
| Y | Additional provincial tax reduction amount based on the number of eligible dependents used in the calculation of Factor S (only applies to Ontario) |
| YAMPE | Year’s Additional Maximum Pensionable Earnings |
| YMPE | Year’s Maximum Pensionable Earnings |
| YTD | Year-to-date, not including current pay period |
All factor definitions appear only in the glossary unless further details are required in specific situations.
Chapter 4 – Option 1 – Tax Formulas
As there are no known updates to the Option 1 – Tax formulas at this time, this section has not been reproduced.
Chapter 5 – Option 2 – Tax formulas based on cumulative averaging
As there are no known updates to the Option 2 – Tax formulas based on cumulative averaging at this time, this section has not been reproduced.
Chapter 6 – Canada Pension Plan (CPP)
As there are no known updates to the Canada Pension Plan at this time, this section has not been reproduced.
Chapter 7 – Employment Insurance (EI)
As there are no known updates to the Employment Insurance at this time, this section has not been reproduced.
Chapter 8 – Rates and amounts
Only the sections pertaining to changes effective January 1, 2025, have been reproduced.
Table 8.1 Rates (R, V), income thresholds (A), and constants (K, KP) for 2025
| Province or territory | Rates (R, V), income thresholds (A), and constants (K, KP) | 1st | 2nd | 3rd | 4th | 5th | 6th | 7th | 8th |
|---|---|---|---|---|---|---|---|---|---|
| PE | A | 0 | 33,328 | 64,656 | 105,000 | 140,000 | |||
| PE | V | 0.0950 | 0.1347 | 0.1660 | 0.1762 | 0.1900 | |||
| PE | KP | 0 | 1,323 | 3,347 | 4,418 | 6,350 |
Table 8.2 Other rates and amounts for 2025
| Province or territory | Basic amount | Index rate | LCP rate | LCP amount | CEA | S2 | T4 to V1 | V1 rate | Abatement | Surtax |
|---|---|---|---|---|---|---|---|---|---|---|
| PE | 14,250 | – |
Claim codes for 2025
| Claim code | Total claim amount ($) from | Total claim amount ($) to | Option 1, TCP ($) | Option 1, K1P ($) |
|---|---|---|---|---|
| 0 | No claim amount | No claim amount | 0.00 | 0.00 |
| 1 | 0.00 | 14,250.00 | 14,250.00 |
1,353.75 |
| 2 | 14,250.01 | 15,850.00 | 15,050.00 | 1,429.75 |
| 3 | 15,850.01 | 17,450.00 | 16,650.00 | 1,581.75 |
| 4 | 17,450.01 | 19,050.00 | 18,250.00 | 1,733.75 |
| 5 | 19,050.01 | 20,650.00 | 19,850.00 | 1,885.75 |
| 6 | 20,650.01 | 22,250.00 | 21,450.00 | 2,037.75 |
| 7 | 22,250.01 | 23,850.00 | 23,050.00 | 2,189.75 |
| 8 | 23,850.01 | 25,450.00 | 24,650.00 | 2,341.75 |
| 9 | 25,450.01 | 27,050.00 | 26,250.00 | 2,493.75 |
| 10 | 27,050.01 | 28,650.00 | 27,850.00 | 2,645.75 |
Page details
- Date modified:
- 2024-07-30