On November 19, 2025, the Canada Revenue Agency released the T4127 – January Payroll Deductions Formulas Guide 122nd Edition.
The T4127 guide helps payroll software providers and companies developing in-house payroll solutions. It contains formulas for determining federal, provincial (excluding Quebec), and territorial income taxes, Canada Pension Plan (CPP) contributions, and employment insurance (EI) premium deductions. These formulas are developed as an interpretation of the Income Tax Act, Canada Pension Plan, and Employment Insurance Act, along with their regulations and proposed amendments.
The guide includes the following upcoming changes
(Indexing – Based on the changes to the consumer price index (CPI)).
Federal
For 2026 and subsequent tax years, the lowest federal tax bracket will be 14%.
- The tax rates and brackets are as follows.
- for income under $58,523, the tax rate is 14%
- for income from $58,523 to $117,045, the tax rate is 20.5%
- for income from $117,045 to $181,440, the tax rate is 26%
- for income from $181,440 to $258,482, the tax rate is 29%
- for income of $258,482 and over, the tax rate is 33%.
Manitoba
The basic personal amount will remain at $15,780.
- The 2026 tax brackets are as follows.
- for income under $47,000, the tax rate is 10.8%
- for income from $47,000 to $100,000, the tax rate is 12.75%
- for income of $100,000 and over, the tax rate is 17.40%.
Nova Scotia
The basic personal amount should be removed for all employees.
Prince Edward Island
The basic personal amount will increase from $14,650 to $15,000.
Saskatchewan
The basic personal exemption, spousal and equivalent-to-spouse exemption, dependent child exemption and senior supplementary amounts are increasing by $500 in each of the next four taxation years. For 2026, the basic personal amount will be $20,381.
- Employers using in-house payroll solutions should:
- Obtain the latest T4127 guide;
- Update payroll software accordingly; and
- Communicate and train staff on the changes.
This ensures accurate payroll deductions and compliance with the CRA requirements.