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What is CPP2 and how does this additional cost affect your business?

cpp2

What is the Canada Pension Plan (CPP)?

Almost everyone who works in Canada is qualified to contribute to and receive benefits from the Canada Pension Plan, also known as the CPP. Since its introduction in 1965 as a complement to Old Age Security, the CPP has served as a deferred income retirement plan.

Key Takeaways:

  • The Canada Pension Plan (CPP) offers elderly or disabled residents an average lifetime income after the age of 65.
  • The taxed wages are placed into a trust fund managed by the CPP Investment Board and making investments in stocks, bonds, and other assets.
  • Benefits are calculated for each individual based on the number of years they have contributed and the minimum amounts required when they reach retirement age.

What is the Second Additional CPP Contributions (CPP2)?

The second additional CPP contributions (CPP2) start on January 1, 2024. They are additional CPP contributions for workers who earn higher wages.

  • The first earnings ceiling
  • The second earnings ceiling

First Earnings Ceiling: The first earnings ceiling or year’s maximum pensionable earnings (YMPE) is the eligible income on which you make CPP contributions. It is $68,500 in 2024.

“If your income is less than the first earnings ceiling, you won’t contribute to CPP2 contributions”

Second Earnings Ceiling: The second earnings ceiling or year’s additional maximum pensionable earnings (YAMPE) is based on the amount of the first earnings ceiling. In 2024, the second earnings ceiling is $73,200.   

The amount of the second earnings ceiling will be approximately 14% more than the first earnings ceiling in 2025 and each year thereafter.

“CPP2 contributions are made by anyone who earns wages above the first earnings ceiling.”

How CPP2 is calculated?

A percentage of wages above the first earnings ceiling up to the second earnings ceiling is used to calculate CPP2.

 

CPP2 contribution rates:

  • 4% for both employers and employees
  • 8% for self-employed individuals

“The employer portion of CPP2 is an additional expense for the business”

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