Why Is So Much Tax Taken Off My Paycheque?
Income tax, CPP, CPP2, EI and the health premium on your pay, why some pays take more, and how to fix your withholding with TD1 or T1213.
The short version
- Your employer must take off four things: income tax (federal and provincial), CPP and CPP2, EI, and in Ontario the health premium, which is collected with income tax.
- Example, Ontario, $72,000 a year paid every two weeks: gross $2,769.23, income tax about $450, CPP about $157, EI about $43. Take-home about $2,119, or 77%.
- Income tax is withheld as if each pay were repeated all year. A big overtime or bonus cheque is taxed as if you earned that every pay, so it looks high.
- CPP and EI stop once you hit the yearly maximum. High earners see bigger paycheques by fall.
- Too much taken off every year? Update your TD1, or ask CRA to reduce withholding with form T1213 if you have RRSP, child care or support deductions.
Why Is So Much Tax Taken Off My Paycheque?
Everybody's first paycheque is a small heartbreak. You agreed to $72,000, you divide by 26, you expect $2,769, and the bank shows $2,119. Nobody stole the $650; it went to four places with legal priority over your rent. Here's where each dollar goes, why some pays look worse than others, and how to get the deduction right instead of waiting for a refund.
Where the Money Goes
| Deduction | 2026 rule | Example per pay ($72,000, biweekly, Ontario) |
|---|---|---|
| Income tax | Federal and provincial brackets, after your TD1 credits | about $450 |
| CPP | 5.95% of earnings between $3,500 and $74,600 | about $157 |
| CPP2 | 4% of earnings between $74,600 and $85,000 | none at this salary |
| EI | 1.63% of earnings up to $68,900 | about $43 |
| Ontario Health Premium | Up to $900 a year, collected with income tax | included above |
Your own numbers are in the salary tax calculator. CPP and EI are explained in detail on CPP and EI deductions. Other lines on a pay stub, such as pension plan contributions, union dues, group benefits and RRSP, are voluntary or set by your workplace.
Pay stub doesn't look right?
Give the assistant your salary, pay frequency, province and the amounts on your stub. It checks each deduction against the 2026 rules and tells you which one is off.
Why Some Pays Take More
- Overtime or a bonus in one pay (is overtime taxed more?). Payroll annualizes each pay, so a $4,000 pay is taxed as if you earned $104,000 a year. It evens out on your return; see bonus tax.
- Taxable benefits such as a car allowance, group life insurance or a gym membership add to taxable pay without adding cash; see taxable employee benefits.
- Two jobs. Each employer gives you the basic personal amount. Combined, too little is withheld, and you owe in April; see why do I owe tax?
- Start of the year. CPP and EI restart in January, so January pays are smaller than December's.
Getting the Withholding Right
- TD1 forms: federal and provincial. Claim the spouse amount, tuition or disability amounts you qualify for, and only one employer should give you the basic personal amount if you have two jobs.
- Form T1213: ask CRA to authorize lower withholding when you have regular RRSP contributions, child care, support payments or rental losses. Once approved, your employer adjusts.
- Owe every year? Ask your employer to withhold an extra amount each pay. It beats instalment reminders; see tax instalments.
- Want to estimate the year-end result? Use the tax refund estimator.
More on how rates work: marginal tax rates and tax brackets.
Vacation Pay
Vacation pay is taxed like the rest of your wages: income tax, CPP and EI come off when it's paid. Paid out in one lump, for example when you leave a job, it can push one cheque into a higher withholding bracket, but your actual tax is settled on the return, so over-withholding comes back as a refund. More on your T4 and lump-sum pay.
Paycheque Deduction Questions
What deductions come off my paycheque in Canada?
Income tax (federal and provincial), CPP and CPP2 contributions, and EI premiums are mandatory. In Ontario the health premium is collected with income tax. Pension, union dues, benefits and RRSP contributions depend on your workplace.
Why was so much tax taken off my bonus or overtime pay?
Payroll calculates tax as if each pay continued all year, so an unusually large pay is withheld at a higher rate. Your actual tax is settled on your return, often with part refunded.
How much is CPP and EI on my pay in 2026?
CPP is 5.95% of earnings between $3,500 and $74,600, plus 4% CPP2 between $74,600 and $85,000. EI is 1.63% of earnings up to $68,900, outside Quebec.
Why did my paycheque go up near the end of the year?
Once you reach the yearly maximum for CPP and EI, those deductions stop until January.
Can I have less tax taken off my paycheque?
Yes, if you have deductions such as RRSP contributions, child care or support payments. Send form T1213 to CRA; once approved, your employer reduces withholding. You can also update your TD1 for credits you qualify for.
Is vacation pay taxed in Canada?
Yes. Vacation pay is employment income: income tax, CPP and EI are deducted when it is paid, and it is included on your T4.
Sources: CRA, T4127 Payroll Deductions Formulas; CPP contribution rates and maximums. Checked October 2026. Example from our 2026 rules engine; real pay stubs differ slightly because payroll uses CRA's per-period formulas and stops CPP and EI at the yearly maximum. Quebec has different rules and is not covered.
Last reviewed October 5, 2026 against CRA and Government of Canada sources. How we check our facts.