Here’s why your first paycheque of the year was far less than your expectation
Higher-income workers and their employers are paying more in Canada Pension Plan contributions because of changes that took effect Jan. 1, reducing some Canadians’ take-home pay.
Most Canadian employees, employers and self-employed individuals began to make extra contributions as part of the CPP enhancement on Jan. 1, 2019.
The government said the CPP changes will provide up to 50 per cent more CPP benefit income for employees who reach retirement age in about 40 years. Those who contributed the extra amounts will receive increased CPP retirement pension, post-retirement benefit, disability pension and survivor’s pension.
As for the recent changes, higher-earning workers will pay second additional CPP contributions, or CPP2, this year and in 2025, according to the government’s website.
Workers with incomes greater than $68,500 and less than $73,200 have to pay the CPP2, which took effect Jan. 1, on top of the base CPP and first additional CPP contributions, according to the government.
They will pay four per cent of their income for CPP2 and their employers will match it, the government said.
Self-employed individuals that meet this criteria will contribute eight per cent of their net business income, it added.
“I would have to say that many employees and employers are currently struggling with inflation and higher interest rates, and although it may be a good idea to ensure that the CPP program is producing appropriate future retirement benefits, these additional costs are compounding affordability issues currently being faced by many employees and employers,” John Oakey, vice-president of taxation at the Chartered Professional Accountants of Canada in Toronto, said in an email to CTVNews.ca.
Franco Terrazzano, federal director of the Canadian Taxpayers Federation, said this year’s payroll bill will be a “big hit” for middle-class Canadian workers and their employers.
“But even worse, Canadians aren’t getting any significant tax relief from the federal government,” said Terrazzano in an email to CTVNews.ca. The federation is an Ottawa-based not-for-profit advocacy group with a mission to lower taxes.
Meanwhile, those earning less than $68,500 this year won’t make CPP2 contributions and will continue to pay the original CPP contributions of 5.95 per cent – matched by employers – or 11.9 per cent for self-employed workers.
Those making at least $73,200 will have a maximum of $188 deducted from their paycheques for CPP2 this year, which will be matched by their employers. Those workers will pay a total of $4,055 in CPP and CPP2, said Terrazzano. For self-employed workers meeting that criteria, they pay a maximum of $376.
This article was reported by CTV News
