The CRA updates payroll deduction formulas every January 1. If you are running payroll manually or using software that is not updated, you risk under-withholding and being on the hook for the difference at year-end. Here is a full breakdown of what changed for 2026.
CPP2: The biggest change for 2026
The most significant payroll change for 2026 is the increase to the CPP2 second earnings ceiling. CPP2 is the second tier of Canada Pension Plan contributions, introduced in 2024. It applies to earnings above the Year's Maximum Pensionable Earnings (YMPE) up to a second ceiling (YMPE2).
For 2026:
- Year's Maximum Pensionable Earnings (YMPE): $71,300 (up from $68,500 in 2025)
- Year's Additional Maximum Pensionable Earnings (YAMPE / CPP2 ceiling): $81,900 (up from $73,200 in 2025)
- CPP contribution rate: 5.95% (unchanged)
- CPP2 contribution rate: 4% on earnings between the YMPE and YAMPE (unchanged)
The practical impact: employees earning above $71,300 will see CPP2 deductions on a wider band of earnings in 2026. For an employee earning $82,000, the maximum CPP2 contribution for the year is approximately $424. This is a meaningful increase from 2025 for higher-earning employees.
EI premium rates for 2026
- Employee EI premium rate: 1.64% (down from 1.66% in 2025)
- Maximum insurable earnings: $65,700 (up from $63,200 in 2025)
- Maximum annual employee EI premium: $1,077.48
- Employer EI rate: 2.296% (1.4 times the employee rate)
The slight reduction in the employee EI rate partially offsets the higher maximum insurable earnings, so the net change for most employees is modest.
Federal income tax brackets for 2026
Federal tax brackets are indexed annually to inflation. The 2026 brackets are:
- 15% on the first $57,375 of taxable income
- 20.5% on income from $57,375 to $114,750
- 26% on income from $114,750 to $158,519
- 29% on income from $158,519 to $220,000
- 33% on income over $220,000
The federal basic personal amount is $16,129 for 2026.
Mid-year updates in July
The CRA also publishes updated deduction formulas in July when mid-year changes are needed. PayCub applies these updates automatically. You do not need to track rate changes or update any settings.
What you need to do
If you use PayCub, nothing. All 2026 rates are already applied as of January 1. Every pay run after today uses the correct CPP, CPP2, EI, and income tax formulas. If you are calculating deductions manually, download the updated T4127 Payroll Deductions Formulas from the CRA website and update your calculations accordingly.