How the CPP2 second earnings ceiling changes payroll budgets in 2026

CPP2 is the second additional contribution to the Canada Pension Plan, charged on earnings that fall between two ceilings. The lower one is the year’s maximum pensionable earnings (YMPE), set at CAD 74,600 for 2026. The upper one is the year’s additional maximum pensionable earnings (YAMPE), set at CAD 85,000. That upper figure is what payroll teams mean by the CPP2 second earnings ceiling.

Below CAD 74,600, the ordinary CPP contribution does the work. In 2026 that rate is 5.95% each for employer and employee, charged on earnings above a CAD 3,500 basic exemption, and it tops out at CAD 4,230.45 per side. Once pay goes past the YMPE, ordinary CPP stops and CPP2 takes over for the next CAD 10,400 of earnings at 4% each. Above CAD 85,000, neither contribution applies to further pay. A salary of exactly CAD 74,600 sits right on the boundary: each side pays the full CAD 4,230.45 of ordinary CPP and nothing at all in CPP2, while every dollar earned after that point falls inside the new band.

The Canada Revenue Agency publishes the band, the rate and the cap on its CPP2 calculation page. The ordinary CPP figures sit on a separate rates and maximums page. Both are updated each January, so a budget built for 2026 should be refreshed with the new ceilings before it is reused for 2027.

The first additional contribution is already inside the 5.95% ordinary rate, while CPP2 is a separate 4% charged only above the YMPE. The 5.95% breaks down into a base rate of 4.95% plus a first additional rate of 1.00%. That 1% slice came in with the CPP enhancement and applies to the same earnings as the base rate, from CAD 3,500 up to CAD 74,600.

The two additional layers are easy to confuse because both are called enhancements and both are described as “additional”. A quick way to keep them apart: the first additional contribution changes the rate on earnings everyone already pays on, and CPP2 opens a new band of earnings that was previously free of pension contributions. Some payroll summaries label the 4% as “first additional”; the CRA calls it the second additional contribution.

The split matters on the employee side. The 1% first additional portion that the employee pays is deductible from income, and the base portion attracts a non-refundable tax credit. The Ontario worked example on this site treats the employee’s CPP2 payment as a deduction too, taking CAD 711 of enhanced CPP and CAD 416 of CPP2 off CAD 85,000 of salary to reach taxable income of CAD 83,873. For the employer, the practical point is simpler: every contribution the employee pays is matched one for one.

CPP2 adds 4% of whatever part of the salary sits between CAD 74,600 and CAD 85,000, and nothing outside that range. The employer cost is therefore zero for salaries at or below the YMPE, grows in a straight line through the band, and stays flat at CAD 416 for any salary of CAD 85,000 or more. The employee pays the same amount again through payroll deductions.

Three salary points show the shape for 2026, assuming one employer for the full calendar year and no other pensionable income:

• CAD 70,000: below the YMPE, so CPP2 is CAD 0 for each side.
• CAD 80,000: CAD 5,400 of pay sits inside the band, so CPP2 comes to CAD 216, owed once by the employer and once more by the employee.
• CAD 120,000: the full CAD 10,400 band is used, so CPP2 is capped at CAD 416 per side.

Put next to the whole bill, the number is modest. In the CAD 85,000 Ontario cost example, CPP2 is CAD 416 out of CAD 93,029.25 of statutory employer cost for the year. The larger CPP line is CAD 4,230.45, and EI adds CAD 1,572.30. CPP2 is still worth modelling, because it lands only on better-paid roles, and a budget built from a single blended percentage tends to miss it.

CPP2 is deducted only after an employee’s year-to-date earnings pass CAD 74,600, so for most salaries it shows up in the last months of the calendar year. Payroll software tracks cumulative pensionable earnings and cumulative contributions for each person, stops ordinary CPP once the CAD 4,230.45 maximum is reached, and switches to CPP2 at 4% from that point.

Take a CAD 85,000 salary paid every two weeks, 26 times a year. Each gross pay is about CAD 3,269.23, and cumulative earnings go past CAD 74,600 in the 23rd pay period. From there until the end of December, the employee pays 4% instead of 5.95% on the pension side. EI premiums will already have stopped earlier in the year, once insurable earnings reach CAD 68,900. The result is a small rise in take-home pay during the final pay runs.

For budgeting, the monthly average hides this pattern. A finance team that accrues employer on-costs evenly across twelve months will see actual CPP, CPP2 and EI costs arrive unevenly: heavier through spring and summer, lighter in the last quarter. Contributions restart from zero on 1 January, so the first pay runs of the new year carry the full ordinary CPP and EI rates again.

For the employee, CPP2 is a payroll deduction of up to CAD 416 a year that goes towards a larger future pension, and it also reduces taxable income in the site’s worked example. Candidates moving into a salary above CAD 74,600 sometimes notice the extra line on their payslip in the autumn, so it helps if the hiring manager can explain it in one sentence.

The Ontario example makes the effect concrete. It assumes a salary of CAD 85,000 for the full 2026 calendar year, one employer, an unmarried employee with only the basic federal and Ontario personal credits, and no RRSP or other deductions. The employee’s side then shows CAD 4,230.45 of CPP, CAD 416 of CPP2 and CAD 1,123.07 of EI. After federal tax, Ontario tax and the CAD 750 Ontario Health Premium, net pay is CAD 63,679.42 for the year, or about CAD 5,306.62 a month.

The CAD 416 is therefore a small share of the gap between gross and net, which is mostly income tax. Even so, a candidate comparing two offers on take-home pay will see it. When an offer letter quotes an estimated monthly net figure, it should say which year’s CPP, CPP2 and EI ceilings were used, and that the figure changes across the year as each contribution reaches its cap. A net estimate based on an average month will sit below the actual payslips in the last quarter and slightly above the ones from January to the autumn.

CPP2 also matters for comparisons with a contractor arrangement. Contributions are one of the places where a wrong status call gets expensive: if CPP, EI or income tax should have been withheld and was not, the CRA can add a 10% penalty (20% where the failure is repeated and knowing or grossly negligent) on top of the arrears and interest. The guide on contractor or employee status in Canada covers the tests the CRA applies before either option is chosen.

Employees in Quebec pay into the Quebec Pension Plan instead of CPP, and QPP has its own second additional contribution with the same 2026 band and cap. Revenu Québec lists it as 4% apiece on the CAD 74,600 to CAD 85,000 slice, with the same CAD 416 limit for each party. The published figures appear in the Revenu Québec summary of 2026 changes.

Where Quebec differs is the ordinary rate below the first ceiling. QPP (Régime de rentes du Québec, or RRQ) charges 6.30% each in 2026, made up of a 5.30% base plus the 1% first additional rate, with a maximum of CAD 4,479.30 per side. On the same salary, a Quebec hire therefore costs slightly more in pension contributions than an Ontario or British Columbia hire, while the top slice from CAD 74,600 to CAD 85,000 costs the same.

Other Quebec payroll items also change the comparison: the Quebec Parental Insurance Plan, a lower EI rate for the employee and employer, and the Health Services Fund contribution. Those belong in a separate Quebec cost estimate. Payroll withholding follows the province of employment; for someone working from home, that means the establishment they report to or, failing that, the one they have a reasonable connection with.

The simplest approach is to treat CPP2 as a fixed line of up to CAD 416 per employee per year for any role paid above CAD 74,600, and to size it exactly once the salary is agreed. A few habits keep the numbers honest:

• Model employer CPP, CPP2 and EI as three separate lines, so a change in one ceiling does not get lost inside a blended percentage.
• Refresh the YMPE, the YAMPE and the rates each January from the CRA pages before the new budget year is locked.
• Check which province the person will work from, because a Quebec hire moves onto QPP and QPIP.
• Expect uneven monthly costs, and accrue for them if your finance team reports monthly against plan.

In an employer of record set-up, these deductions are run by the employer of record acting as legal employer, which remits them to the CRA and reports them on each person’s T4 slip. For a regular remitter, the CRA payment falls due on or before the 15th of the following calendar month, and T4 slips must reach the CRA by the end of February after the tax year. The guide to running payroll for Canadian staff covers the rest of the cycle, and the overview of CPP, EI and other employer costs places CPP2 alongside health tax and workers’ compensation.

The service fee at Employer of Record Canada comes on top of those statutory lines: from USD 560 for each person, charged monthly. The pricing page sets out what that fee covers.