Understanding Payroll Deductions in U.S. and Canada

Although there are a number of deductions constructed from each worker’s paycheck, payroll taxes are a selected subset of deductions made that don’t embrace earnings tax or different deductions made by the employer. Payroll taxes are set on the federal degree in addition to the state/province and native ranges. They sometimes go in the direction of funding public packages that profit the worker. 


Although payroll taxes are utilized to staff in each Canada and the US, the packages they fund and the tax charges differ. Since taxes are paid primarily based on the place the worker works from, it is crucial for these hiring throughout the border to know the payroll tax deductions in every nation.

Payroll taxes are set on the federal degree within the U.S., although some states and native municipalities have further taxes they anticipate employers to deduct throughout every pay interval. Along with the payroll deductions, there are further taxes that staff are anticipated to pay like earnings tax, and others employers are required to pay like federal unemployment tax (FUTA). 


Payroll tax deductions within the U.S. fall beneath the Federal Insurance coverage Contribution Act (FICA). These are cut up into two separate taxes: social safety tax and medicare tax. Although these taxes come out of the worker’s pay, they’re the employer’s accountability and ought to be robotically deducted from every paycheck. Along with the payroll deductions, employers are anticipated to arrange and file a W-2 Wage and Tax Assertion

U.S. Payroll Tax Charges

FICA Taxes (7.65%)

Social Safety Tax. 6.2% with a wage-based contribution restrict


Medicare Tax: 1.45% with no cap

You should use a U.S. payroll tax calculator to calculate payroll tax duties for every worker.


In Canada, payroll tax deductions are technically set on the federal degree, however Quebec handles issues in a different way than the opposite provinces and territories. Since payroll taxes in Canada are paid primarily based on the province or territory wherein the worker is working, this is a crucial distinction. 


Along with earnings tax, which is ready on the provincial and territorial degree, Canadian employers have to deduct for Employment Insurance coverage (EI) in all provinces and territories and the Canadian Pension Plan (CPP) in all besides Quebec. In Quebec, deductions will should be made for Employment Insurance coverage (EI), Quebec Pension Plan (QPP), and Quebec Parental Insurance coverage Plan. 

Canadian Payroll Tax Charges

Employment Insurance coverage (EI): 2.21% (1.65% in Quebec)

Canada Pension Plan (CPP): 5.45%

Quebec Pension Plan (QPP): 5.9%

Quebec Parental Insurance coverage Plan: 0.692%

You should use a Canadian payroll tax calculator to calculate payroll tax duties for every worker.


The excellence between impartial contractor vs worker is a crucial one. Although they might be finishing comparable initiatives, there are authorized variations between these two employee classifications. In each Canada and the US, employers will not be liable for the payroll tax deductions of impartial contractors. 


The contractor is liable for all taxes and deductions and will not be eligible for advantages by means of the employer. On account of this distinction, correct classification of staff is a crucial step. Misclassifying can include authorized and monetary penalties for the employer. It may be seen as tax evasion or advantages depravation and can usually end in fines and penalties for the employer. Along with these fines, it might injury the model repute. 

Contractor Payroll Tax Charge

United States 

Within the U.S. there’s a self-employment tax fee of 15.3%. That’s damaged down as 12.4% for social safety and a pair of.9% for medicare. They may even possible be anticipated to pay federal and native earnings taxes. 



Not like the U.S., which gives a easy tax fee, self-employed Canadians might want to calculate tax deductions for every particular person program. Sadly, in Canada employers match contributions for CPP, so as a substitute of the 5.45%, they might want to pay 10.5%


There’s an EI program designed for self-employed people. Premiums for this program are primarily based on the self-employed earnings and alter yearly. They may even differ for Quebec residents vs residents of the opposite provinces and territories. In 2022, you’ll pay $1.58 in EI premiums for each $100 you earn with a max contribution of $952.74. In Quebec for 2022, you’ll pay $1.20 in EI premiums for each $100 you earn with a max contribution $723.60. The decrease fee is as a result of advantages offered beneath the Québec Parental Insurance coverage Plan.


In Canada, some self-employed contractors might also be eligible for employment insurance coverage (EI) particular advantages in the event that they contribute in the direction of it. 


Payroll will be difficult. Payroll taxes will differ from nation to nation and by state or province. Whether or not you’re hiring nationally or internationally, we may also help preserve you compliant. Go away it to The Payroll Edge. Contact us immediately!


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