What Is Year's Maximum Pensionable Earnings (YMPE)?
Let me explain the Year's Maximum Pensionable Earnings, or YMPE, directly to you. The Canadian government establishes this figure each year, and it acts as the ceiling on earnings that qualify for contributions to the Canada Pension Plan or Quebec Pension Plan. Essentially, YMPE defines the maximum income level you can use when calculating your pension contributions for that year.
Key Takeaways on YMPE
You need to know that YMPE directly sets the max earnings for CPP contributions. For 2022, that maximum under the Canada Pension Plan stands at $64,900. Remember, the retirement payments you'll receive hinge on your earnings throughout your career, the age you begin drawing your pension, and the extent and duration of your CPP contributions.
Understanding Year's Maximum Pensionable Earnings (YMPE)
The Canada Pension Plan uses YMPE to limit the earnings eligible for contributions. As per the Government of Canada, the 2022 YMPE is $64,900, which is an increase from $61,600 in 2021. If you earn above this in 2022, you won't contribute more to the CPP on that excess. Starting in 2024, expect a new contribution rate for earnings over the YMPE—likely 4% each for you and your employer.
Year's Maximum Pensionable Earnings and CPP Contributions
Think of the Canada Pension Plan as Canada's version of the U.S. Social Security—it delivers monthly retirement payments based on your working years' earnings. Back on June 20, 2016, Canada's finance ministers decided to enhance the CPP, boosting what working Canadians get from one-quarter to one-third of eligible earnings, along with a higher earnings cap. These changes roll out over seven years, from 2019 to 2025, to keep things gradual.
Features of the CPP Enhancement
- Income replacement level rises to one-third of employees' income.
- Upper earnings limit reaches $82,700 by 2025.
- Seven-year phase-in begins January 1, 2019: five years for contribution rates below YMPE, then two years for the upper limit.
- Working Income Tax Benefit increases for low-income earners.
- Enhanced employee CPP contributions become tax-deductible.
Details on Contribution Phase-In
For 2022, the YMPE is $64,900, marking the cap for standard contributions. The increased rate on earnings below this YMPE phases in over five years. By 2023, the Department of Finance Canada estimates a one percentage point hike in CPP rates for both employers and employees up to the YMPE. Then, in 2024, that separate 4% rate kicks in for earnings above the YMPE.
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