Here’s the answer to this week’s reader question.
“Why is my paycheque in January less than what I was paid in December?”
— Michelle
Why you earn less in the new year in Canada
January is the start of a new year, and that means that Canada Pension Plan (CPP and CPP2) and Employment Insurance (EI) deductions start coming off your paycheque again. Almost every working Canadian contributes to CPP and EI. So, that’s the reason you earn less money in January. But the good news is that you will find relief from these in the coming months.
Every fall, the Canada Revenue Agency announces the CPP and EI rates for the coming year. For 2026, the CPP maximum annual contribution amounts for employees and self-employed workers are $4,230.45 and $8,460.90, respectively, (which are up from last year: $4,034.10 and $8,068.20), and second additional CPP amounts are $416 for employees and $832 for self-employed (also up from $396 and $792). For employment insurance, maximum EI premiums are $1,123.07 for employees and $1,572.30 if you’re self-employed (also higher than 2025: $1,077.48 and $1,508.47).
Because we all earn different amounts of pay, how long it can take to get to the maximum amounts can vary from person to person. Take a look at your paycheque deposits in your banking app to estimate how long it might for this year, if you had a full year of employment last year with a similar annual income.
Once you’ve contributed up to that maximum, your employer must stop deducting CPP and EI for the rest of the year—which seems like a “pay bump” in the latter part of the year. The CPP and EI deductions are usually not spread evenly across all 12 months, regardless of income.
There could be other reasons for a smaller new year paycheque, such as employer benefits or premiums that reset—health, dental and life insurance premiums, pension plan contributions and similar deductions may restart or change in January.
So, what should you do with excess money from those later months when CPP and EI are maxed out? I’m glad you asked.
You can pay yourself first. Assuming you have adequate room to contribute and there are no contravening tax rules, my recommendation is to maximize contributions to your first home savings account (FHSA) and registered retirement savings plan (RRSP). These are tax-advantaged, i.e., contributions are deductible from income in the year. Another effective savings mechanism in Canada is the tax-free savings account (TFSA). Contributions to TFSA are not tax-advantaged (they aren’t deductible from income but any gains within the account are tax-free).
In January, take the slimmer paycheque as a nudge to think about your financial situation, so you can plan your cash-flow strategy for the upcoming tax year.
—Ram BG, CPA, CA
Principal at Ram BG
Have a question for us? Send it to TheGet@neofinancial.com.
As told to Lisa Hannam
Lisa Hannam is an award-winning editor and journalist, and she is the Editor-in-Chief of The Get. She has previously been at the helm of celebrated Canadian publications, including MoneySense. She completed the Canadian Securities Course in 2024.
Read more from this issue of The Get:
- 10 AI prompts to put money back in your pocket
- MVP: Bobbie Racette on going from unemployed to mogul
- How to make January suck less
- True or False: Your credit score follows you to Canada
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The Get is owned by Neo Financial Technologies Inc. and the content it produces is for informational purposes only. Any views and opinions expressed are those of the individual authors or The Get editorial team and do not necessarily reflect the official policy or position of Neo Financial Technologies Inc. or any of its partners or affiliates.
Nothing in this newsletter is intended to constitute professional financial, legal, or tax advice, and should not be the sole source for making any financial decisions. Past performance is not a guarantee of future results. Neo Financial Technologies Inc. does not endorse any third-party views referenced in this content. Always do your due diligence before deciding what to do with your money.
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