Understanding Your First Canadian Paycheck

Why Your Take-Home Is Less Than Your Salary

If you just received your first Canadian paycheck and the amount looks much lower than you expected, you are not alone. Almost every newcomer to Canada is surprised by how much is deducted before the money reaches their bank account.

This guide explains every deduction on a typical Canadian paycheck in plain English so you know exactly where your money is going.

The Two Types of Deductions

Every deduction on your paycheck falls into one of two categories:

• Mandatory government deductions — required by law. Everyone pays these.
• Voluntary deductions — things you signed up for, like health benefits or a pension plan through your employer.

Mandatory Government Deductions

These three deductions appear on every Canadian paycheck outside Quebec:

Federal Income Tax

Canada uses a progressive tax system. This means you pay different rates on different portions of your income — not a flat rate on everything.

For 2026, the federal brackets are:

• 15% on income up to $57,375
• 20.5% on income from $57,375 to $114,750
• 26% on income from $114,750 to $177,882
• 29% on income from $177,882 to $253,414
• 33% on income above $253,414

Everyone also gets a basic personal amount of $16,129 — meaning the first $16,129 of your income is tax-free federally.

Provincial Income Tax

On top of federal tax, each province charges its own income tax. Ontario, British Columbia, and Quebec have the highest provincial taxes. Alberta has no provincial sales tax and relatively low income tax.

Your employer automatically deducts both federal and provincial tax from each paycheque based on the province where you work.

CPP — Canada Pension Plan

CPP is not a tax — it is your retirement savings. Every dollar you contribute builds up your entitlement to a monthly pension when you retire at 65. Your employer also contributes the same amount on your behalf, so the total going toward your pension is double what you see deducted.

In 2026, you contribute 5.95% of your earnings between $3,500 and $74,600. Once you hit the annual maximum of $4,230.45, CPP stops being deducted and your take-home pay increases.

EI — Employment Insurance

EI protects you if you lose your job through no fault of your own. If you are laid off, you can apply for EI benefits and receive up to 55% of your insured earnings for up to 45 weeks while you look for work.

In 2026, the EI rate is 1.63% of your insurable earnings up to a maximum of $68,900. Once you hit the annual maximum premium of $1,123.07, EI also stops being deducted.

What is a TD1 Form?

When you start a new job in Canada, your employer gives you a TD1 form (Personal Tax Credits Return). This form tells your employer how much tax to withhold from each paycheque. You declare any credits you are entitled to — such as the basic personal amount, tuition credits, or disability credits.

If you do not fill out a TD1, your employer withholds tax as if you have no credits, which means more tax is taken off each paycheque. Make sure you fill it out.

A Typical Paycheck Breakdown

Here is an example for someone earning $60,000/year in Ontario, paid bi-weekly:

Tips for Newcomers

• Fill out your TD1 form on your first day — it reduces tax withholding
• Open a TFSA as soon as you get your SIN — it is the best tax-free savings account in Canada
• File your tax return every year by April 30th even if you think you owe nothing — you may get a refund
• Keep your T4 slip when it arrives in February — you need it to file
• If you have multiple jobs, inform each employer to withhold extra tax to avoid owing at year end