Every year, the government announces the current rates for Employment Insurance (EI) and Canada Pension Plan (CPP) for both employees and employers. Understanding these rates is the best way to optimize your tax return.
Below are the 2020 rates and maximums:
The Canada Pension Plan (CPP) is a pension program that provides partial replacement of earnings to contributors and their families during retirement, or in case of disability or death.
For many years, the rate held steady at 4.95%, but, starting in 2019, it was decided that enhancements would be made to the CPP to increase the retirement benefit to replace one-third of average work earnings received after 2019.
This compares to the previous replacement of one-quarter of earnings prior to 2019. As a result, the contribution rate for both the employer and employee will be increased gradually each year until 2023, when it will hit 5.95%.
For this reason, the CPP contribution rate for 2020 has increased from 5.1% to 5.25% of pensionable earnings, up to maximum earnings of $58,700 and is paid by both the employer and the employee.
The basic exemption amount, which is the amount at which CPP begins to be deducted, is unchanged at $3,500.
Employment Insurance (EI) provides temporary income support to unemployed Canadians. EI contributions are made by both the employee and the employer.
The 2020 EI premium for employees has again decreased, in 2020, from 1.62% to 1.58% of earnings - up to a maximum of $54,200. This results in a premium of $856.36 ($54,200 x 1.58%).
The employer EI premium remains unchanged at 1.4 times the employee contribution, resulting in a maximum premium of $1198.90 ($856.36 x 1.4).
For more information on changes to EI premiums and CPP contributions and how they will affect you as an employee or employer, contact us today! Koroll & Company looks forward to helping you strategize your 2020 tax plan.