Payroll tax withholding that reduces net pay and sits beside CPP and EI inside source deductions.
An income tax deduction is the amount payroll withholds from an employee’s pay for income tax purposes during the year.
On many Canadian pay stubs, this is one of the biggest deduction lines. It belongs inside the broader source-deductions category, but it should not be confused with CPP or EI because those are separate payroll deductions with different purposes.
Income tax deduction matters because it affects:
It is also one of the deduction lines employees question most often because the amount can change when earnings, TD1 information, or special-pay lines change.
In Canadian payroll, payroll generally uses the employee’s taxable pay, pay frequency, and TD1 information to determine how much income tax to withhold for the run. Depending on the payroll context, that withholding may be discussed at a general level or split into federal and provincial or territorial components.
Payroll then needs to:
That means the income tax deduction is a payroll withholding amount, not the employee’s final annual tax calculation. In Quebec payroll context, additional provincial treatment can also matter.
| Related tax concept | What it does | Why it is different from payroll income tax deduction |
|---|---|---|
| Income tax deduction | Withholds tax from the current pay run | It is a payroll-period withholding result |
| TD1 | Gives payroll employee tax-credit information | It is an input, not the deduction itself |
| Federal income tax deduction | Shows the federal component of payroll tax withholding | It is only one part of the total tax deduction |
| Provincial income tax deduction | Shows the non-Quebec provincial or territorial component | It varies with province or territory of employment |
| Final income tax return | Reconciles the year after filing | It is not the same as per-pay withholding |
An employee’s pay stub shows:
$2,300$335$120$37Later, the employee submits an updated TD1 because their tax-credit situation changed. A later pay run can therefore show a different income tax deduction even if the employee’s broad pay pattern looks similar.
Actual withholding depends on current payroll tables, TD1 inputs, Quebec context where relevant, and the employee’s pay pattern. This page explains the payroll role of the deduction, not the live calculation rules.