CPP2 Enhancement Second Tier 2025 & 2026 — Extra 4% Contribution Explained (CRA)

Since 2024, Canadians earning above a specific income threshold have been paying a second tier of CPP contributions on top of the traditional plan. Known officially as CPP2, it is the final step of the CPP enhancement that started phasing in during 2019. If you earn above roughly $73,000 and your paycheque since 2024 has shown a slightly smaller take-home, CPP2 is why.

Here is what CPP2 is, exactly how much it costs in 2025 and 2026, who pays it, and what workers get in return over a full career.

The Short Version

• CPP has two earnings tiers as of 2024. Tier 1 stops at the YMPE (Year’s Maximum Pensionable Earnings). Tier 2 runs from the YMPE up to the YAMPE (Year’s Additional Maximum Pensionable Earnings).
• On tier 2 earnings, you and your employer each contribute 4% (self-employed workers pay the full 8%).
• For 2025, tier 2 applies to earnings between $71,300 (YMPE) and $81,200 (YAMPE) — a band of $9,900 — producing an employee CPP2 cost up to $396.
• For 2026, tier 2 applies to earnings between $73,200 (YMPE) and $83,400 (YAMPE) — a band of $10,200 — producing an employee CPP2 cost up to $408.
• CPP2 funds a separate 33.33% income replacement slice. A worker who contributes fully to both tiers over 40 years receives a retirement pension roughly 50% larger than someone capped at the pre-2019 CPP.

Why Two Tiers Now Exist

From 2019 to 2023, the CPP enhancement Phase 1 gradually raised the base contribution rate from 4.95% to 5.95% of pensionable earnings between the basic exemption and the YMPE. That Phase 1 move lifted the target income replacement from 25% of career-average earnings to 33.33%.

Phase 2, which began on January 1, 2024, added an entirely new upper earnings band above the YMPE, extending the enhanced replacement rate to higher-income workers. The goal was to bring meaningful CPP retirement benefit coverage to earners whose pre-2019 CPP was capped at a relatively low threshold (for 2023, that cap was $66,600).

The second tier is formally labelled “CPP2” on pay stubs, T4 slips, and CRA systems.

CPP2 Thresholds: 2024, 2025, and 2026

Year	YMPE (tier 1 ceiling)	YAMPE (tier 2 ceiling)	Tier 2 band	Employee CPP2 rate	Max employee CPP2
2024	$68,500	$73,200	$4,700	4.00%	$188.00
2025	$71,300	$81,200	$9,900	4.00%	$396.00
2026	$73,200	$83,400	$10,200	4.00%	$408.00

Notes:

• In 2024 (the first phase-in year), the YAMPE was set at 107% of the YMPE.
• From 2025 onward, the YAMPE is 114% of the YMPE, which is the permanent formula. That is why 2025 saw a large jump in the tier-2 band, from $4,700 to $9,900.
• Employers match the employee contribution dollar-for-dollar. Self-employed workers pay both halves — max 2026 self-employed CPP2 contribution is $816.

Who Actually Pays CPP2?

You pay CPP2 on every dollar of pensionable earnings you receive above the YMPE and up to the YAMPE in a given year. Earnings above the YAMPE are not subject to any CPP contribution.

• Employees earning below the YMPE ($73,200 in 2026) pay zero CPP2. Only the base CPP applies.
• Employees earning between the YMPE and YAMPE pay CPP2 on the portion of their income in that band, at 4%.
• Employees earning above the YAMPE pay the maximum CPP2 ($408 in 2026) and nothing on earnings above.
• Employers match exactly.
• Self-employed workers pay both halves (8% combined) of the tier-2 band, to a max of $816 in 2026 — in addition to the full double-rate 11.90% base CPP contribution.

CPP2 applies to the same categories of “pensionable earnings” as the base CPP: salary, wages, bonuses, commissions, taxable benefits. Capital gains, dividends, rental income, and RRIF withdrawals do not attract any CPP contribution.

Worked Example: 2026 Pay Stub of a $90,000 Earner

Consider a salaried employee earning $90,000 in 2026. Here is the breakdown of CPP and CPP2.

Item	2026 value
Gross pensionable earnings	$90,000
Basic exemption	$3,500
Tier 1 rate	5.95%
Tier 1 contributory earnings	$73,200 − $3,500 = $69,700
Max employee base CPP	$69,700 × 5.95% = $4,147.15
Tier 2 (CPP2) band	$73,200 to $83,400 ($10,200)
Earnings in the tier-2 band (fully in band)	$10,200
Tier 2 rate	4.00%
Max employee CPP2	$10,200 × 4.00% = $408.00
Earnings above YAMPE ($83,400 to $90,000)	$6,600 — no CPP
Total 2026 employee CPP + CPP2	$4,555.15

Employer pays an identical $4,555.15. The employee’s full CPP cost is visible as two line items: CPP and CPP2 on every pay statement, and in Box 16 and Box 16A on the 2026 T4.

For self-employed workers, double the numbers: $9,110.30 in total 2026 combined base + CPP2 contributions on $90,000 of self-employment earnings, half deductible (Schedule 8) and half eligible for the non-refundable CPP tax credit.

What Workers Get in Return

The CPP enhancement is structured as a separate benefit layer on top of the pre-2019 pension.

• Base CPP (original plan + Phase 1 enhancement): targets income replacement of up to 33.33% of career-average earnings up to the YMPE.
• CPP2 (Phase 2 enhancement): adds income replacement of 33.33% on the additional earnings band between YMPE and YAMPE.

For a worker who consistently earns at or above the YAMPE over a full 40-year contributory career, the projected CPP retirement benefit in today’s dollars rises from roughly $17,500/year (pre-2019 design) to roughly $25,500–$26,000/year once the enhancement is fully phased in circa 2065 — about a 50% increase in maximum CPP retirement income.

Key nuance: the enhancement builds up year by year. A worker retiring in 2026 has only 2-3 years of CPP2 contributions on their record, so their enhanced benefit is modest. The full effect only accrues for younger workers paying CPP2 across most of their working lives.

CPP2 on Your Tax Return

Both base CPP and CPP2 contributions appear on your return:

• The employee half of base CPP contributions on pensionable earnings is claimed partly as a non-refundable tax credit (line 30800) and partly as a deduction (line 22215 — the “enhancement portion”).
• The full amount of CPP2 employee contributions is treated as a deduction on line 22215, not as a credit. This matters because a deduction at your marginal rate is generally more valuable than a 15% federal credit.
• Self-employed workers split their combined base + CPP2 contributions in the same way on Schedule 8.

Plug your numbers into the CPP & EI Calculator to see the exact split for your income, or the Income Tax Calculator to see how CPP2 affects your overall tax picture. If you are planning when to start drawing CPP, the CPP/OAS Start Age Calculator models how extra years of CPP2 contributions shift the break-even age.

FAQ

Is CPP2 optional?

No. Any employee under age 70 with pensionable earnings above the YMPE is automatically enrolled. The only way to stop contributing is to be over 65 and filing Form CPT30 to elect out (available only if you are already receiving CPP retirement benefits).

Does CPP2 affect RRSP contribution room?

No — CPP2 contributions do not reduce your “earned income” calculation for RRSP purposes. Your 2025 earned income (used to compute 2026 RRSP room) is your employment and net self-employment income before CPP/EI, so CPP2 is neutral for RRSP.

What happens if I have two jobs and both deduct CPP2?

If your combined employment income exceeds the YAMPE, you may overpay CPP2 across the two employers. You reclaim the overpayment on your T1 — Schedule 8 calculates the refund. Each employer must deduct as if yours is the only job; the reconciliation happens at tax time.

Is CPP2 separate money or part of the same CPP fund?

Accounting-wise, CPP enhancement contributions (including CPP2) flow into the Additional CPP account, administered separately from the Base CPP account. Both are managed by CPP Investments. For recipients the pension arrives as a single monthly payment, but the components are tracked separately in actuarial reports.

Will the YMPE and YAMPE keep rising?

Yes. The YMPE increases annually based on the growth in average weekly earnings. The YAMPE is set at 114% of the YMPE permanently from 2025 onward, so the gap widens in absolute dollar terms each year. Watch CRA’s November announcement each year for the next year’s figures.

Sources

• CRA — CPP contribution rates, maximums, and exemptions
• CRA — Second additional CPP contributions (CPP2)
• Canada.ca — CPP enhancement
• CRA — Schedule 8 (CPP contributions for self-employed and others)