Examples on how to prorate the maximum contribution to CPP

Example 1

Brent turned 18 on June 15, 2018. He receives $1,000 every two weeks ($26,000 a year). This amount is less than the maximum pensionable earnings ($55,900 for 2018) that require CPP contributions.

Prorated maximum contribution for 2018:

($55,900 – 3,500) × 6/12 × 4.95% = $1,296.90
(6/12 represents the number of pensionable months divided by 12).

Brent’s maximum CPP contribution for 2018 is $1,296.90.

Pay period calculation:

January to June 2018
No CPP contributions

July to December 2018

  • Pay period: biweekly
  • Earnings: $1,000
  • Brent’s first pay in July is July 3, for the period June 20 to July 3.

Using the calculation in the basic exemption chart, Brent’s CPP contributions for each pay are calculated as follows:

Step 1: Brent’s pensionable earnings = $1,000.00

Step 2: Basic exemption for the period from the basic exemption chart = $134.61

Step 3: Pensionable earnings minus basic exemption = $865.39

Step 4: CPP contribution rate for 2018 = 4.95%

Step 5: CPP contribution per pay period = $42.84

You will have to start deducting $42.84 from each of Brent’s pays, beginning with the one dated July 3 (the month after Brent turns 18). His actual contributions for the year will be $42.84 × 13 (biweekly pay periods) = $556.92.

This does not exceed the prorated maximum contribution of $1,296.90; therefore, the correct amount of CPP has been deducted.

When you fill out Brent’s T4 slip at the end of the year, report $26,000 in box 14, $556.92 in box 16, and $13,000 in box 26. Fill in the rest of his T4 slip in the usual way.

Example 2

Maria turned 70 on February 15, 2018. She receives $1,076.92 per week ($56,000 per year). This amount is more than the maximum pensionable earnings ($55,900 for 2018) that requires CPP contributions.

Prorated maximum contribution for 2018:

($55,900 – 3,500) × 2/12 × 4.95% = $432.30 (2/12 represents the number of pensionable months divided by 12).

Maria’s CPP contributions for 2018 should not be more than $432.30.

Pay period calculation:

January to February 2018

  • Pay period: weekly
  • Earnings: $1,076.92
  • Maria’s last pay in February is February 26, covering the period February 20 to February 26

March to December 2018

No CPP contributions

Using the calculation in the basic exemption chart, Maria’s CPP contributions for each pay are calculated as follows:

Step 1: Maria’s pensionable earnings = $1,076.92

Step 2: Basic exemption for the period from the basic exemption chart = $67.30

Step 3: Pensionable earnings minus basic exemption = $1,009.62

Step 4: CPP contribution rate for 2018 = 4.95%

Step 5: CPP contribution per pay period = $49.98

Maria’s CPP contributions will be $49.98 each pay, up to and including her pay dated February 26 (the month in which she turns 70). Her actual contributions for the year will be $49.98 × 9 (weekly pay periods) = $449.82.

Since this is more than the prorated maximum CPP contribution of $432.30, you should stop deducting when the maximum contribution is reached. If you deducted $449.82, you will have to reimburse your employee for the difference. For more information, see CPP overpayment.

When you fill out Maria’s T4 slip at the end of the year, report $56,000 in box 14, $432.30* in box 16, and $9,316.67* (55,900 × 2/12) in box 26. Fill in the rest of her T4 slip in the usual way.

* These were calculated using the maximum pensionable earnings of $55,900 for 2018.

Example 3

Catherine is 64 years old and receives a CPP retirement pension. On July 23, 2018, she turned 65 and elected to stop paying CPP contributions. She gave you a signed and completed Form CPT30, Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election, that same day.

Catherine receives $1,000 every two weeks ($26,000 a year). This amount is less than the maximum pensionable earnings ($55,900 for 2018) that requires CPP contributions.

Prorated maximum contribution for 2018:

($55,9003,500) × 7/12 × 4.95% = $1,513.05 (7/12 represents the number of pensionable months divided by 12).

Catherine’s maximum CPP contribution for 2018 is $1,513.05.

Pay period calculation:

January to July 2018

  • Pay period: biweekly
  • Earnings: $1,000
  • Catherine’s last pay in July has a pay date of July 29, covering the period July 4 to July 17.

August to December 2018

No CPP contributions

Using the calculation in the basic exemption chart, Catherine’s CPP contributions for each pay are calculated as follows:

Step 1: Catherine’s pensionable earnings = $1,000.00

Step 2: Basic exemption for the period from the basic exemption chart = $134.61

Step 3: Pensionable earnings minus basic exemption = $865.39

Step 4: CPP contribution rate = 4.95%

Step 5: CPP contribution per pay period = $42.84

You have to deduct CPP contributions from each of Catherine’s pays, up to and including the last pay dated in the month she gives the election to you. Her actual contributions for the year will be $42.84 × 16 (biweekly pay periods) = $685.44.

This does not exceed the prorated maximum contribution of $1,513.05; therefore, the correct amount of CPP has been deducted.

When you fill out Catherine’s T4 slip at the end of the year, report $26,000 in box 14, $685.44 in box 16, and $16,000 in box 26. Fill in the rest of her T4 slip in the usual way.

For more information about these CPP rules, go to Changes to the rules for deducting Canada Pension Plan (CPP) contributions.

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