there are some big changes to the CPP the Canada Pension Plan and this will affect your paycheck
hey guys it's Adrian here the Canadian in a T-shirt and today I'll break down the important
changes to the CPP in 2024 that you need to know every year the CPP makes small adjustments to
the annual limits percentage rates that's nothing new but this year on January 1st the CPP is being
restructured with a secondary tier for higher incomes this is a big change so I wanted to make
a dedicated video just for the CP p p the regular tax changes for 2024 I'll cover that as soon as
they release the details for the CPP here's the bottom line if you make less than 66,000 your CPP
contributions won't change you're going to pay the same amount as you did in 2023 but if you
have a higher income above 73k you're going to pay an extra $300 in CPP this year I'll break it
down but real quick the Canada Pension Plan is a federal retirement plan that we all pay into
while we're working and when you retire you get to take that money out it ensures that every Canadian
will have at least some level of income when they retire note if you live in Quebec you'll pay into
the qpp instead it's very similar and let's be clear the CPP is not a tax it doesn't go to the
government it doesn't fund the federal budget it's a pooled retirement fund that we Canadian workers
contribute to our employers also contribute all of our money is invested together and when we retire
we take back our cut whatever you put in is your money you get it back if you contribute more you
get more if you contribute less you get less yes the CBP contributions come out of your paycheck
but it's not a tax that money is still yours so why is the CPP going up no surprise inflation the
cost of living goes up every year so the future cost of your retirement also grows so yes we will
pay more out of each paycheck but we'll gain a larger benefit once we retire especially for
Millennials and gen Z in fact with these changes young workers who will retire 40 years from now
will collect 50% more retirement income than current pensioners sounds great but how much do
we pay we start with the basic exemption of $3,500 you don't pay any CPP on the first 3500 of income
that number is not changing anything above 3500 you contribute 5.95% of that income to the CPP
up to an annual limit this contribution rate 5.95% that's also not changing the first change of 2024
is that limit the maximum CPP contribution for 2023 this limit was $3,745 that was the maximum
amount you could put into your CPP you'd pay 5.95% of each paycheck until you reached 3,745
then your CPP deductions would stop now for 2024 it's bumped up to $3,867 so the max you'll pay
has gone up by $100 but that's not all you'll only Reach This max amount if you have a salary above
$68,500 for 2024 this number is called the maximum pensionable earnings so once you made 68,500 in a
year your CPP deductions would stop and you'd see a bump in your paycheck for the rest of the year
see how this works in my past up video using my actual paychecks as examples so that was the old
system simple now the big change for 20124 higher income Canadians will face a second level of CPP
contributions so in tier one you pay 5.95% until your income reaches that first ceiling $68,500
now we have tier two any income above that gets charged 4% until we reach the second ceiling of
$73,700 this new limit is called the additional maximum pensionable earnings it's an awful name
I know but this is the income you need to maximize your CPP contributions so how much more do we pay
in the second tier we pay 4% of the income income between these two ceilings so the max 73,800 minus
68,500 that's $4,700 of income taking 4% of that we get $188 of additional CPP contributions that's
on top of the $100 increase we already saw in Tier 1 in 2023 the max CPP contribution was $3,754 for
2024 combining both tiers the max CPP contribution is4 $55 so if your income is above 73k you'll pay
an extra $300 in CPP this coming year let's see two examples starting with a salary of $60,000
remember the basic exemption is $3,500 we don't pay any CPP on this so take the difference we
get $556,500 we pay 5.95% of this in CPP the same rate for both years so in total we paid $3,361 in
CPP no change if your income is 60k you'll pay the exact same CPP amount in 2024 let's look at a high
income of $90,000 this is higher than the maximum pensionable earnings for both years 66,6 in 2023
and 68,500 in 2024 so we use these Max values not our 90k salary again take away the exemption of
3500 on the difference we pay 5.95% giving us 3,75 for the maximum CPP contribution in 2023 and for
2024 we get $3,867 this is the max in Tier 1 Now we move on to tier 2 this is new for 2024 tier
2 has an income ceiling of $732 and we only care about income above ceiling one so the difference
is $4,700 on this amount we pay the new CPP rate of 4% that gives us $188 of CPP in tier 2 for the
total in 2024 we add the two tiers and we get $455 that's the maximum anyone can pay into CPP
in 2024 so for a high income above 73k you'll pay $300 more in CPP this year remember for CPP you
contribute and your employer contributes as well on your behalf but if you are self-employed you're
running your own business you are your employer so you'll have to pay double the CPP ready regular
Canadian employees the CPP maximum in 2024 is $455 but for self-employed it's double at $8,100 make
sure you watch the rest of my Canadian tax guide my videos with the silver color thumbnails to
learn tax saving strategies and stay tuned for more CPP videos coming soon so thanks everyone
and I'll see you guys on the next episode of the Canadian in a t-shirt bye guys