A second ceiling has been added to the contribution and earnings limit for the Canada Pension Plan (CPP) and Québec Pension (QPP) plan starting in 2024. This article will give you everything you need to know about how the CPP/QPP calculation has worked up to 2023, and what will be different in 2024.
What is CPP?
CPP (or QPP in Québec) is the national pension plan that provides supplementary income to its contributors after retirement. It is a deduction of pensionable earnings which deducts up to a certain maximum amount per year.
What is new in 2024 for CPP?
As mentioned, CPP will now have a second ceiling. Previously, once you reached your maximum contribution, the CPP deductions would stop. Now, when you reach the maximum of the first ceiling (CPP1), you will be deducted a new rate (CPP2) in the second ceiling. The chart below illustrates the new maximums.
| CPP 1 Contribution Rate (First Earnings Ceiling) | Year’s Maximum Pensionable Earnings (YMPE) - First Earnings Ceiling | Maximum Yearly CPP 1 Contribution | CPP 2 Contribution Rate – Second Earnings Ceiling | Year’s Additional Maximum Pensionable Earnings (YAMPE) - Second Earnings Ceiling (2024) | Maximum Yearly CPP 2 Contribution |
| 5.95% | $68,500 | $3,867.50 | 4% | $73,200 | $188 |
What does this mean?
In brief:
An employee will contribute to CPP at 5.95% of their pensionable earnings until they’ve contributed $3,867.50. Until this point, they are paying CPP 1.
Once they’ve passed the threshold of $68,500 in pensionable earnings, the employee will contribute to CPP at 4% of their pensionable earnings until they’ve contributed $188. Paying at this second threshold is CPP2.
In (not so) brief:
The first part is 5.95% of the yearly maximum pensionable earnings (YMPE) of $68,500. *Pensionable earnings are wages plus taxable benefits less the pay period exemption. The exemption that everyone in Canada gets is $3500/year. This amount is broken down per pay period. For example, if your payroll is done on a bi-weekly frequency, you would take 3500/26 to get an exemption of $134.61 per pay. Note: (never round up on the exemption!)
Let’s say the wages+benefits are $1,000. To get your pensionable earnings, you would calculate: 1000-134.61= $865.39
CPP is 865.39 x .0595= $51.49
The annual employee maximum for CPP in 2024 for the first ceiling is $3867.50
Of this 5.95%, 1% would be considered a tax deduction on amounts owed on Federal Income Tax.
The second part of CPP is all pensionable earnings earned by the employee between the amounts of $68,500 and $73,200. This part has no exemption as it was applied in the first part of CPP above. This second ceiling has a CPP rate of 4% up to a max of $188.00. This full 4% is tax-deductible to the employee, so they will see a change in federal tax amounts when paying this CPP portion.
The max someone making over $73,200 would pay in CPP is $4055.50
Employees will see a difference in their federal tax amounts as they move from CPP1 to CPP2 and then max out because of the tax deduction portion of the CPP.
2024 QPP Changes
The same concepts that apply to CPP, as explained above, will apply to QPP. However, the contribution rate differs. See the chart below for the breakdown.
| QPP 1 Contribution Rate (First Earnings Ceiling) | Year’s Maximum Pensionable Earnings (YMPE) - First Earnings Ceiling | Maximum Yearly QPP 1 Contribution | QPP 2 Contribution Rate – Second Earnings Ceiling | Year’s Additional Maximum Pensionable Earnings (YAMPE) - Second Earnings Ceiling (2024) | Maximum Yearly QPP 2 Contribution |
| 6.4% | $68,500 | $3,867.50 | 4% | $73,200 | $188 |
Exemptions
If an employee is below 18 or over 70, they do not contribute to CPP until the first pay in the month after they turn 18/70. For example, if they turn 18/70 on June 1, they will start (18)/stop(70) paying CPP on their first pay date in July. When adding such an employee to the system, don’t worry about manually exempting them from this tax – the system will handle that automatically. There are also other circumstances where an employee may be exempt, so we recommend checking with your accountant or the CRA to confirm if ever an employee notifies you that they are exempt.
Special Runs & CPP/QPP
Please note: if you are running a Special Run, the CPP exemption will not be calculated. This is because special pay runs are meant to be completed as additional runs. This means they end u paying a slightly greater CPP amount (as it’s being calculated as a percentage of wages + benefits rather than wages + benefits – exemption), but this is correct for this kind of pay run. If you were to run an additional pay run as a regular run where the CPP exemption is calculated, then you risk over-exempting your employees. For example, a bi-weekly employee has an exemption of $134.61 per pay run (as above). If they were to be included in a 27th pay run, their annual exemption would increase to $3634.61, possibly leading to penalties from the CRA.