Your First Job in Canada: Understanding Deductions

Your First Paycheque Will Be Smaller Than You Think

If you've just started your first job in Canada, you've probably noticed your take-home pay is significantly less than your hourly rate or salary suggests. That's because of mandatory deductions — amounts your employer withholds and sends to the government on your behalf.

Don't worry — this is normal, and some of this money comes back to you as benefits later. Here's what's being deducted and why.

The Three Mandatory Deductions

1. Income Tax (Federal + Provincial)

Canada has a progressive tax system, meaning you pay different rates on different portions of your income. Your employer estimates your annual tax and withholds a portion from each paycheque.

At a typical first-job salary of $35,000–$40,000:

Federal rate: 15% on income up to $58,523 (after the Basic Personal Amount)
Provincial rate: Varies by province (e.g., 5.05% in Ontario, 8% in Alberta)
Combined marginal rate: ~20%–25% depending on province

But you don't pay tax on your first ~$16,129 of income (the Basic Personal Amount or BPA). This is a non-refundable credit that effectively makes your first dollars tax-free.

2. CPP — Canada Pension Plan

CPP is a mandatory retirement pension. You and your employer each contribute 5.95% of your pensionable earnings between $3,500 and $74,600.

At a $37,000 salary:

CPP contribution: ($37,000 – $3,500) × 5.95% = $1,993.25/year (~$76.66/bi-weekly pay)

If you work in Quebec, you pay into the QPP (Régime de rentes du Québec) instead — same rate, different administrator.

What you get: A retirement pension starting as early as age 60. The more years you contribute, the higher your pension.

3. EI — Employment Insurance

EI premiums fund benefits like unemployment insurance, parental leave, and sickness benefits. The employee rate for 2026 is 1.63% on insurable earnings up to $68,900.

At a $37,000 salary:

EI premium: $37,000 × 1.63% = $603.10/year (~$23.20/bi-weekly pay)

In Quebec, the rate is lower (1.295%) because Quebec has its own parental insurance plan (QPIP/RQAP).

What you get: If you lose your job through no fault of your own, EI replaces 55% of your earnings (up to a weekly maximum) while you look for work.

Example: Your First Paycheque at $37,000

Here's approximately what a bi-weekly paycheque looks like at $37,000/year in Ontario:

Item	Amount
Gross pay	$1,423.08
Federal tax	−$107.00
Provincial tax (ON)	−$44.00
CPP	−$76.66
EI	−$23.20
Net pay (take-home)	~$1,172.22

Your effective tax rate is about 17.6% — much lower than the 20%+ marginal rate because of the Basic Personal Amount credit.

What is the TD1 Form?

When you start a new job, your employer will ask you to fill out a TD1 form (and a provincial TD1 if applicable). This form tells your employer how much tax to withhold.

Why it matters:

The TD1 claims your Basic Personal Amount ($16,129 federal for 2026)
If you have additional credits (tuition, disability), you can claim them on the TD1 to reduce withholding
If you don't fill it out, your employer must withhold tax as if you only have the basic personal amount — which is usually correct for a first job

Common TD1 situations:

Single, one job: Check the box that says you're claiming only the basic personal amount. This is the default.
Two jobs simultaneously: You should claim the basic personal amount on the TD1 for only ONE employer. The second employer should withhold at the full rate (check "Total income less than basic personal amount" = no).
Student with tuition credits: You can claim tuition amounts on the TD1 to reduce withholding during the school year.

QPIP — Quebec Workers Only

If you work in Quebec, you'll see an additional deduction: QPIP (RQAP) at 0.494% of earnings up to $98,000. This funds Quebec's parental insurance program. At $37,000, that's about $182.78/year.

Your EI rate is lower (1.295% vs 1.63%) to partially offset this.

Will You Get Any of This Back?

Possibly! When you file your tax return in April:

If too much tax was withheld (common if you started mid-year), you'll get a refund
CPP and EI are not refundable — but they provide future benefits
If you have tuition credits or other deductions, your refund could be significant

Tips for First-Time Workers

File your tax return even if your income is low. You may get a refund and you'll build RRSP contribution room.
Keep your pay stubs. Compare them to your T4 slip at year-end.
Fill out the TD1 correctly. It ensures the right amount of tax is withheld.
Don't panic about the deductions. CPP and EI are building your safety net.

Calculate Your Take-Home Pay

Use the PayCalc calculator to see exactly what your take-home pay will be. Enter your salary or hourly rate, select your province, and see the full breakdown of every deduction.