CPP2 Changes: What Mental Health Practitioners Need to Know for 2025 Taxes
With year-end approaching, now is an ideal time to pause and check in on your practice’s financial health. For many self-employed mental health professionals, 2025 has brought new considerations for tax planning. One important change is the second phase of the Canada Pension Plan (CPP) enhancement, which affects higher-income earners. If your practice has grown this year, it is important to understand these changes to ensure you are prepared for tax season.
What is the “Enhanced” Canada Pension Plan?
A few years ago, the federal government began updating the Canada Pension Plan to help Canadians save more for their retirement. The government has rolled out this enhancement into two parts. The first part, from 2019 to 2023, gradually increased the standard CPP contribution rate.
The second part, which began in 2024, introduced a new, higher limit for contributions. This is often referred to as “CPP2.” It means that if your income exceeds a specific threshold, you will contribute an additional amount toward your future pension. For mental health practitioners, this change is a positive step for long-term financial wellness, but it requires careful short-term planning.
Understanding the 2025 Contribution Limits
To understand how CPP2 works, it helps to think of two different income “ceilings.” The CRA divides your income into two tiers, and once the first tier is reached, you start contributing to the second.
The First Earnings Ceiling (YMPE)
The first ceiling is the one you are likely familiar with. It is called the Year’s Maximum Pensionable Earnings, or YMPE. This is the maximum income used to calculate your standard CPP contributions. According to the Canada Revenue Agency, for 2025, the YMPE is set at $71,300. Any self-employment income you earn up to this amount is subject to the standard CPP contribution rate.
The Second Earnings Ceiling (YAMPE)
The new, second ceiling is called the Year’s Additional Maximum Pensionable Earnings, or YAMPE. This limit was introduced for income earned above the first ceiling. For 2025, the YAMPE is $81,200. If your income is between the YMPE ($71,300) and the YAMPE ($81,200), you will make additional CPP2 contributions on that specific portion of your earnings.
How CPP2 Affects Your Solo Practice
As a self-employed professional, you are responsible for paying both the employee and employer portions of CPP contributions. This means the financial impact of these changes is particularly relevant to you.
Let’s imagine a scenario. Say your solo practice has a net income of $75,000 in 2025. Here is how your CPP contributions would break down:
- Base CPP: You would first contribute on your income up to the YMPE of $71,300.
- CPP2: You would then contribute the CPP2 rate on the portion of your income between $71,300 and your total income of $75,000 (which is $3,700).
A stronger-than-expected year is great news for your practice. However, it may also mean you’ve exceeded the second earnings ceiling, leading to higher CPP contributions than in previous years.
Your Year-End Financial Check-In
A quick review now can help you avoid a surprise tax bill next spring. We recommend taking a few simple steps before the end of the year:
- Review Your Earnings: Calculate your total self-employment income to date and project it forward to the end of the year.
- Check the Thresholds: See if your projected income will surpass the $71,300 YMPE and enter the second CPP2 range.
- Adjust Your Source Deductions: If your income for the year is projected to be above $71,300, you may want to track your contributions and adjust your source deductions to account for the additional CPP2 amount.
Navigating tax changes can feel complex, but proactive planning can simplify the process. Taking the time to understand your obligations helps you avoid unexpected challenges.
If you have questions about how these changes affect your specific situation, we are here to help. Book a 15-minute Tax Therapy session to get your most compelling question answered.
