Due to recent changes that came into effect on January 1, higher-income workers and their employers in Canada are now making increased contributions to the Canada Pension Plan (CPP). This has led to a reduction in the take-home pay for some Canadians. The CPP enhancement, initiated on January 1, 2019, requires most employees, employers, and self-employed individuals to contribute extra amounts. The government asserts that these changes will result in up to a 50% increase in CPP benefit income for individuals reaching retirement age in approximately 40 years.
In the current adjustment, higher-earning workers are obligated to make additional CPP contributions, known as CPP2, in the years 2024 and 2025, as outlined on the government’s website. Those with incomes between $68,500 and $73,200 must pay CPP2, effective January 1, on top of the base CPP and the first additional CPP contributions. The contribution is four percent of their income, matched by their employers. Self-employed individuals meeting this criterion are required to contribute eight percent of their net business income.
John Oakey, Vice-President of Taxation at the Chartered Professional Accountants of Canada, noted that many employees and employers are grappling with inflation and higher interest rates. He emphasized that while ensuring the CPP program’s adequacy for future retirement benefits is important, these additional costs exacerbate affordability challenges currently faced by many.
Franco Terrazzano, Federal Director of the Canadian Taxpayers Federation, expressed concern that this year’s payroll bill would be a significant burden for middle-class workers and their employers. He criticized the lack of substantial tax relief from the federal government. Employees earning less than $68,500 this year will not contribute to CPP2, maintaining the original CPP contributions of 5.95%, matched by employers, or 11.9% for self-employed workers. Those earning at least $73,200 will see a maximum of $188 deducted for CPP2, matched by employers, resulting in a total contribution of $4,055 for CPP and CPP2. Self-employed individuals meeting this criterion will pay a maximum of $376.
