Understanding Your First Paycheck and Deductions

Almost every newcomer has the same reaction to their first Canadian paycheck: “why is this smaller than I expected?” The gap between your salary and what actually lands in your bank account is completely normal — here’s exactly where it goes.

The four things typically deducted

1. Federal and provincial income tax

Canada uses a progressive tax system — you pay a higher rate only on the portion of income above each bracket, not your whole income. As of 2026, federal tax starts at 14% on income up to $58,523, rising in steps at higher income levels. BC’s provincial tax starts at 8.7% up to $44,678. Everyone also gets a “basic personal amount” (federally $16,452, provincially $11,188 in 2026) that isn’t taxed at all.

2. CPP (Canada Pension Plan)

A mandatory contribution toward your future retirement pension. In 2026, employees contribute 5.95% of earnings between $3,500 and $74,600 (your employer matches this amount dollar-for-dollar). Higher earners also pay a smaller additional “CPP2” contribution on earnings between $74,600 and $85,000.

3. EI (Employment Insurance)

Funds benefits you can access if you lose your job, or take parental/caregiving leave. In 2026, the employee rate is 1.63%, applied to earnings up to $68,900 per year.

4. Any workplace benefits you’ve opted into

If your employer offers extended health/dental coverage, a pension top-up, or union dues, your share of the cost is usually deducted directly from your paycheck too.

Understanding your T4

Every February, your employer issues you a T4 slip summarizing everything you earned and everything deducted over the previous calendar year. You’ll need this to file your tax return. If you worked for more than one employer during the year, you’ll get a T4 from each one.

Why you might owe money — or get a refund — at tax time

The amount deducted from each paycheck is an estimate based on standard assumptions. When you file your tax return (by April 30 each year), the government calculates your actual tax owed — if too much was deducted throughout the year, you get a refund; if too little was deducted, you’ll owe the difference. Neither outcome means anything went wrong — it’s completely normal.

Filing taxes even with low income

Filing a tax return — even if you earned very little or nothing — is how you become eligible for benefits like the GST/HST credit and, if you have children, the Canada Child Benefit. Skipping tax filing because your income was low actually costs you money you’re entitled to.

This guide is intended as general orientation information, not tax or legal advice. Tax rates and thresholds change annually — always confirm current figures at canada.ca before filing.