CPP Contributions When Self-Employed: What You Owe and How to Calculate It

One of the biggest surprises for new freelancers in Canada is the CPP bill. When you are self-employed, you pay both the employee and employer portions of Canada Pension Plan contributions. That effectively doubles what you would pay as a salaried worker. Here is how it works, how to calculate what you owe, and how your business expenses reduce the amount.

How CPP Works for Self-Employed Individuals

As an employee, CPP contributions are split: you pay half and your employer pays the other half, each at a rate of 5.95% (for 2025). Your employer deducts your share from each paycheque and remits the combined amount to the CRA.

When you are self-employed, you are both the employee and the employer. You pay both halves, for a combined rate of 11.90% on your net self-employment earnings between the basic exemption and the annual maximum.

This is calculated on Schedule 8 of your personal tax return and the amounts owing appear on your Notice of Assessment.

Key Numbers for 2025

Detail	Amount
Basic exemption	$3,500
Maximum pensionable earnings (YMPE)	$71,300
Employee contribution rate	5.95%
Self-employed combined rate	11.90%
Maximum annual CPP contribution (self-employed)	$8,068.20

Your CPP contributions apply to net self-employment earnings between $3,500 and $71,300. Earnings below the basic exemption are not subject to CPP. Earnings above the YMPE are not subject to base CPP (but see CPP2 below).

CPP2: The Second Ceiling

Starting in 2024, the government introduced CPP2, a second tier of contributions that applies to earnings between the first ceiling (YMPE) and a second, higher ceiling called the Year's Additional Maximum Pensionable Earnings (YAMPE).

For 2025:

Detail	Amount
YAMPE (second ceiling)	$81,200
CPP2 employee rate	4.00%
CPP2 self-employed combined rate	8.00%
Maximum annual CPP2 contribution (self-employed)	$792.00

CPP2 only applies to the earnings band between $71,300 and $81,200. If your net self-employment income is below the first ceiling, CPP2 does not apply to you.

Combined maximum: If your net self-employment income exceeds $81,200, your total CPP and CPP2 contributions for 2025 would be approximately $8,860 ($8,068 base CPP + $792 CPP2).

How to Calculate Your CPP Contributions

Here is a step-by-step example.

Scenario: You earned $95,000 in gross freelance revenue and had $30,000 in deductible business expenses. Your net self-employment income is $65,000.

Step 1: Determine Pensionable Earnings

Net self-employment income: $65,000

Step 2: Subtract the Basic Exemption

$65,000 - $3,500 = $61,500

Step 3: Apply the Self-Employed Rate

$61,500 x 11.90% = $7,318.50 in base CPP contributions

Step 4: Check for CPP2

Since $65,000 is below the first ceiling of $71,300, CPP2 does not apply in this example.

Step 5: Tax Deduction for Employer Portion

Here is the good news: the employer-equivalent portion (half of your total CPP) is deductible on line 22200 of your tax return. In this example, $3,659.25 would reduce your taxable income.

The employee-equivalent portion qualifies for the CPP non-refundable tax credit instead, which reduces your federal tax at the lowest marginal rate (15%).

How Business Expenses Reduce Your CPP

This is critical. CPP is calculated on your net self-employment income, not your gross revenue. Every legitimate business expense you claim on your T2125 reduces the income subject to CPP contributions.

Using the example above:

Scenario	Gross Revenue	Expenses	Net Income	CPP Owing
No expenses claimed	$95,000	$0	$71,300 (capped)	$8,068.20
$30,000 in expenses	$95,000	$30,000	$65,000	$7,318.50
$50,000 in expenses	$95,000	$50,000	$45,000	$4,938.50

Claiming that $30,000 in expenses saved roughly $750 in CPP alone, on top of the income tax savings. This is why tracking every deductible expense matters -- it reduces both your income tax and your CPP bill.

Can You Opt Out of CPP?

No. If you are self-employed and between the ages of 18 and 65, CPP contributions are mandatory on your net self-employment earnings above the basic exemption. There is no voluntary opt-out.

However, there are two limited exceptions:

• Age 65 to 70: Once you turn 65, you can elect to stop contributing to CPP by filing a CPT30 form with the CRA. If you are self-employed, you make this election on your tax return.
• After age 70: CPP contributions stop automatically. You cannot contribute past age 70.

If you are under 65 and self-employed, the contributions are not optional regardless of whether you are already receiving other pension income.

CPP and Partnerships

If you operate a partnership, each partner's share of the partnership's net income is subject to CPP individually. The partnership itself does not pay CPP. Each partner calculates their own contributions on Schedule 8 based on their allocated share.

Planning Tips

1. Set Aside CPP Money Monthly

Many freelancers are caught off guard by their CPP bill. A good rule of thumb is to set aside 25-30% of your net income for combined income tax, CPP, and any GST/HST obligations. The CPP portion alone is roughly 12%.

2. Maximize Your Business Deductions

Since CPP is calculated on net self-employment income, every dollar of legitimate deductions saves you 11.90 cents in CPP contributions (plus income tax savings).

3. Consider CPP as Forced Retirement Savings

Unlike income tax, CPP contributions build your future pension entitlement. The maximum CPP retirement pension for 2025 is approximately $1,364 per month if you start at age 65. Higher contributions during your working years mean a higher pension later.

4. Quarterly Instalment Payments

If you owe more than $3,000 in combined tax and CPP (or $1,800 in Quebec), the CRA expects you to make quarterly instalment payments. Failing to do so triggers interest charges, even if you pay the full amount at filing time.

Sources

1. CRA CPP Contribution Rates, Maximums, and Exemptions
2. CRA Schedule 8 - CPP Contributions on Self-Employment Income
3. CRA CPP2 Additional Maximum Pensionable Earnings
4. CRA Line 22200 - CPP Employer-Equivalent Deduction
5. CRA CPT30 - Election to Stop Contributing to CPP