Insights & advice
Understanding how pay stub deductions work
April 2022 – 15 min read
Key takeaways
A pay stub is the written record of your pay and deductions
You should expect amounts to be deducted from your pay for various reasons
What’s in this article?
What’s a pay stub?
Your pay stub is the written summary of how your gross pay (your salary before deductions) is calculated for a specific period (weekly, bi-weekly, semi-monthly), and all the amounts that are subtracted to determine your net pay (the amount you actually receive).
If you receive an actual paper paycheque, then you pay stub will likely be a piece of paper. If your pay is deposited directly to your bank account, your pay stub will likely be digital.
What deductions can you expect?
By law, employer must deduct income tax, and employee contributions to employment insurance (EI)Opens a new website in a new window - Opens in a new window and Canada Pension Plan (CPP)Opens a new website in a new window - Opens in a new window or Quebec Pension Plan (QPP)Opens a new website in a new window - Opens in a new window.
Income tax
In Canada, federal income tax is paid at the same rate up to certain level of income. Tax on additional dollars is paid at a higher level (or tax bracket) according to the table below.
Source: Canada Revenue AgencyOpens a new website in a new window - Opens in a new window
| Income level | Tax rate for 2022 |
|---|---|
| $1 to $50,197 | 15% |
| $50,197 to $100,392 | 20.5% |
| $100,392 to $155,625 | 26% |
| $155,625 to $221,708 | 29% |
| Over $221,708 | 33% |
Because of a tax deduction called the basic personal amount, you may also not pay income tax on some of your income. In 2021, the basic personal amountOpens a new website in a new window - Opens in a new window was $13,808.
In addition to federal income tax, you’ll also pay provincial tax, which is different for each province/territory.
Employment insurance and Canada Pension Plan/Quebec Pension Plan
You must participate in these federal government programs because you may receive payments from them in the future.
If you become unemployed, need to upgrade your skills, or need to take time off for a life event like a pregnancy or illness, EI may[CC1] provide you with temporary income.
When you retire, CPP/QPP pays a monthly benefit to you if you qualify.
In addition to the amounts deducted from your pay, your employer also contributes to EI and CPP on your behalf.
Both EI and CPP/QPP contributions are a percentage of your gross pay. However, the federal government sets maximum annual amounts you can contribute to EI and CPP/QPP. Depending on how much you earn, you may reach the maximum amount before the year is over. When this happens, you’ll see a slight increase in your net pay until the deductions start again when the new year begins.
Other deductions
Depending on the additional benefits your workplace provides, and which benefits you choose to take advantage of, you may also have payroll deductions for:
- Share ownership plan
- Group savings plan
- Group health insurance plan
- Cafeteria charges
- Fitness centre fees
- Parking fees
- Company vehicle fees
- Charity pledges
What’s next?
Now that you understand more about your pay stub and your paycheque deductions, you may want to talk with your advisor about:
Creating a budget that helps you achieve your financial goals
Determining the best strategy to pay off any student loans and still save for your future
The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.
