Payroll Deductions Formulas - 114th Edition Effective July 1, 2021
T4127(E) Rev. 21/07
La version française de cette publication est intitulée Formules pour le calcul des retenues sur la paie – 114e édition.
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
For your payroll deductions, you can use our Payroll Deductions Online Calculator (PDOC). The calculator includes an option to help you make sure that enough Canada Pension Plan contributions and employment insurance premiums have been withheld for full-year employees.
It calculates payroll deductions for the most common pay periods, as well as the applicable province (except Quebec) or territory. The calculation is based on exact salary figures.
PDOC is available at canada.ca/pdoc.
Payroll Deductions Tables
Using the following links you can download the publications T4032, Payroll Deductions Tables and T4008, Payroll Deductions Supplementary Tables. You can also 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 July 1, 2021?
This guide reflects some income tax changes recently announced which, if enacted as proposed, would be effective July 1, 2021. At the time of publishing, these proposed changes were not law. We recommend that you use the Payroll Deductions Online Calculator (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 2021.
At the time of publishing, there were no federal changes announced.
Provincial and territorial tax changes
You will find below the provincial and territorial tax changes effective July 1, 2021. The current and previous figures for the most commonly used rates, amounts, and claim codes can be found in Chapter 5.
Please note that there is no change for Alberta, British Columbia, Manitoba, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island, Quebec, Saskatchewan, Yukon or Outside Canada.
New Tax Rate
- The Government of New Brunswick announced on May 11, 2021, that there would be a reduction of the tax rate applied to the first tax bracket from 9.68% to 9.4% effective January 1, 2021, subject to the approval by the New-Brunswick government.
- Since employees have been taxed at a different rate for the first six months of the year, a prorated tax rate will apply for the remaining six months.
- The prorated tax rate effective July 1, 2021 will be 9.12%
- For those using the Option 2 tax formula based on cumulative averaging, no proration is required. Use the new rate of 9.4% and a value of 0.00 for factor KP for the first tax bracket. For details on the option 2 tax formula see the January 2021 release of this guide.
Chapter 2 – Glossary
All factor definitions appear only in the Glossary unless further details are required in specific situations.
Table 2.1 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|
|BPANS||Basic Personal Amount for Nova Scotia|
|BPAYT||Basic Personal Amount for Yukon|
|C||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 Canada Pension Plan contribution with the employer (cannot be more than the annual maximum)|
|DQ||Employee’s year to date Quebec Pension Plan contribution with the employer (cannot be more than the annual maximum)|
|D1||Employee's year-to-date employment insurance premium 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|
|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 include 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 is used to calculate this credit)|
|K2||Federal Canada Pension Plan contributions and employment insurance premiums 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 CPP and EI deduction to determine 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 annual deduction(s) in that pay period|
|K2P||Provincial or territorial 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||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)|
|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||Factor calculated using the Canada employment amount credit (the lowest federal tax rate is used to calculate this credit)|
|K4P||Factor calculated using the provincial or territorial Canada employment amount credit (only applies to Yukon)|
|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 (only applies to New Brunswick, Newfoundland and Labrador, Nova Scotia, Saskatchewan, British Columbia, and Yukon)|
|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 B year-to-date|
|N||The number of days since the last commission 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|
|P||The number of pay periods in the year|
|PI||Pensionable income for the pay period, or the gross income plus any taxable benefits for the pay period, including bonuses and retroactive pay increases where applicable|
|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||Basic amount used in the calculation of provincial tax reduction (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, TC is the basic personal amount, 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 that form is not filed, TCP is the provincial or territorial basic personal amount|
|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 or territorial surtax calculated on the basic provincial or territorial tax (only applies to Prince Edward Island and Ontario)|
|V2||Additional tax calculated on taxable income (only applies to the Ontario Health Premium)|
|Y||Additional provincial or territorial tax reduction based on the approved letter of authority received from Tax Service Office for the applicatble year.|
Chapter 3 – Option 1 – Tax formula
Formula to calculate Federal Basic Personal Amount (BPAF)
As the formula to calculate the Federal Basic Amount and the explanatory variables have not changed, they have not been reproduced.
Step 1 - Formula to calculate annual taxable income (A)
As the formula to calculate the annual taxable income and the explanatory variables have not changed, they have not been reproduced.
Step 2 - Formula to calculate basic federal tax (T3)
As the formula to calculate the basic federal tax and the explanatory variables have not changed, they have not been reproduced.
Step 3 - Formula to calculate the annual federal tax payable (T1)
As the formula to calculate the annual federal tax payable and the explanatory variables have not changed, they have not been reproduced.
Step 4 - Formula to calculate annual basic provincial or territorial tax (T4)
As the formula to calculate the annual basic provincial or territorial tax and the explanatory variables have not changed, they have not been reproduced.
Step 5 - Formulas to calculate the annual provincial or territorial tax deduction (T2)
T2 = T4 + V1 – S – LCP
If the result is negative, T2 = $0.
T4 = (V × A) – KP – K1P – K2P – K3P
V and KP are based on 2021 index values for A see the Rates (R, V), income thresholds (A), and constants (K, KP) for 2021 Table 5.1 in Chapter 5.
K1P = 0.0912 × TCP
K2P = [(0.0912 × (P × C, maximum $3,166.45)) + (0.0912 × (P × EI, maximum $889.54))]
V1 and S = $0
LCP = The lesser of:
(i) $2,000; and
(ii) 20% of the amount deducted or withheld during the year for the acquisition by the employee of approved shares of the capital stock of a prescribed labour-sponsored venture capital corporation
Step 6 - Formula to calculate the estimated federal and provincial or territorial tax deductions (T) for the pay period
As the formula to calculate the estimated federal and provincial or territorial tax deductions for the pay period and the explanatory variables have not changed, they have not been reproduced.
Chapter 4 – Option 2 – Tax formula based on cumulative averaging
For those using the Option 2 tax formula based on cumulative averaging, no proration is required. Use the new tax rate of 9.4% and a value of 0.00 for factor KP for the first tax bracket. For details on the option 2 tax formula see the January 2021 release of this guide.
As there were no changes affecting the Canada Pension Plan nor to the Employment Insurance, these chapters were not reproduced.
Chapter 5 – Rates and amounts
To download the Chapter 5 tables in comma-separated value (CSV) format see the T4127 Payroll Deductions Formulas website.
Rates and amounts for 2021
Table 5.1 Rates (R, V), income thresholds (A), and constants (K, KP) for 2021
|Province or territory||Rates (R, V), income thresholds (A), and constants (K, KP)||1st||2nd||3rd||4th||5th||6th||7th|
Table 5.2 Other rates and amounts for 2021
|territory||Basic amount||Index rate||LCP rate||LCP amount||CEA||S||T4 → V1||V1 rate||Abatement||Surtax|
For information on 2021 federal personal amounts, see the form TD1, Personal Tax Credits Return and the form TD1X, Commission Income and Expenses for Payroll Tax Deductions. For information on 2021 provincial or territorial personal amounts, see the respective form TD1AB, TD1BC, TD1MB, TD1NB, TD1NL, TD1NS, TD1NT, TD1NU, TD1ON, TD1PE, TD1QC, TD1SK, or TD1YT.
Table 5.3 Canada Pension Plan / Quebec Pension Plan 2021 rates and amounts
|CPP/QPP||YMPE||Basic Exemption||Max contributory earnings||Employee contribution rate||Employee max contribution||Self-employed max contribution||YMPE before rounding|
|CPP (Canada except QC)||61,600||3,500||58,100||0.0545||3,166.45||6,332.90||61,647.97|
Table 5.4 Employment Insurance 2021 rates and amounts
|EI||Annual max insurable earnings||Employee contribution rate||Employer contribution rate||Annual max employee premium||Annual max employer premium|
|Canada except QC||56,300||0.0158||0.02212||889.54||1,245.36|
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