The Canada Pension Plan (CPP) is a mandatory social insurance program that provides retirement income to Canadian workers. Contributions build credits throughout your working years, which determines your pension amount at retirement (age 60–70). Both employees and employers contribute, and self-employed individuals pay both portions.

CPP1 is the base contribution (5.95% for employees) on earnings between the basic exemption ($3,500) and the maximum pensionable earnings ($71,300). CPP2 is an enhanced contribution (4%) introduced in 2024, applied to earnings between $71,300 and $79,400. Self-employed individuals pay both the employee and employer portions for each tier.

The basic exemption is the first $3,500 of your annual earnings that is not subject to CPP contributions. This means you only pay CPP on earnings above $3,500. For example, if you earn $50,000 annually, only $46,500 is pensionable ($50,000 – $3,500).

For 2025, the maximum pensionable earnings is $71,300. This means CPP1 contributions are only calculated on earnings up to this amount. Earnings above $71,300 are subject to CPP2 (up to $79,400), not the CPP1 rate. This creates a progressive contribution system.

Self-employed individuals pay both the employee and employer portions of CPP, effectively doubling the contribution rate: 11.9% for CPP1 (5.95% + 5.95%) and 8% for CPP2 (4% + 4%). However, they can claim a deduction for half of their CPP contributions on their tax return.

Generally, no. CPP contributions are mandatory for all employed or self-employed Canadians between ages 18 and 70. However, if you reach the maximum pensionable earnings early in the year, you stop paying CPP contributions for the remainder of that year. Additionally, self-employed individuals can claim a deduction for half their CPP contributions.