Every Ontario employer with payroll above a modest floor owes the Employer Health Tax, and most established Toronto-area businesses have been filing it for years without much drama — the exemption amount hasn't moved since 2020, so the calculation feels settled. What changes the picture is growth. As a business adds headcount and payroll climbs through 2026, it can cross filing and eligibility lines that carry real consequences: a shift from annual to monthly remittance, or the loss of the exemption altogether. Neither of those triggers a letter in the mail before it happens — they depend on your own payroll numbers, tracked against thresholds most owners haven't had reason to look at closely until now.
What EHT is and who pays it
The Employer Health Tax is a payroll tax administered by Ontario's Ministry of Finance, owed by employers on total Ontario remuneration — salaries, wages, bonuses, taxable benefits, and most other forms of employment income paid to employees who report for work at, or are paid from, a permanent establishment in Ontario. It funds the provincial health care system and applies independently of federal payroll deductions like CPP and EI.
Source: Government of Ontario — Employer Health Tax (EHT).
The exemption: $1 million, unchanged through 2029
Eligible private-sector employers can claim an exemption on the first $1,000,000 of total Ontario remuneration each year — a threshold that has been in place since 2020 and, notably, is not scheduled to move again until January 1, 2029. The exemption is normally indexed to the Ontario Consumer Price Index every five years, and the adjustment that would ordinarily have landed in 2024 was postponed specifically because the exemption had already been doubled (from $490,000 to $1 million) in 2020. Registered charities can claim the exemption regardless of payroll size; other private-sector employers qualify only if they are not controlled by government and meet the payroll test described below.
Source: Government of Ontario — EHT tax exemption.
The rate that applies is graduated, not flat
Once total Ontario remuneration exceeds the exemption, the applicable tax rate is graduated based on your total payroll for the year (before subtracting the exemption) — not on the taxable balance. Employers with payroll up to $200,000 pay at 0.98%; the rate then rises in steps through several bands and reaches 1.95% once total remuneration exceeds $400,000. Because the rate is set by total payroll and applied to the amount remaining after the exemption, two employers with the same taxable balance can owe different amounts if their gross payroll sits in different bands.
Source: Ontario Ministry of Finance — Guide for Employers, Employer Health Tax.
The two thresholds that actually change as you grow
The exemption amount is fixed until 2029. What is not fixed is where your business sits relative to two separate payroll thresholds, and both are worth checking now if 2026 has been a growth year.
$1,200,000 — the monthly instalment trigger. Employers whose total Ontario remuneration for the year is expected to exceed $1,200,000 must remit EHT in monthly instalments rather than filing and paying once a year. Instalments are calculated on the prior month's payroll and are due by the 15th of the following month. A business that crosses this line partway through the year needs to start remitting monthly from that point forward — it is not a year-end-only adjustment, and missing an instalment once you're over the threshold can attract interest even if the annual return is ultimately correct.
$5,000,000 — the exemption cliff. This is the sharper edge. An eligible employer whose total Ontario remuneration for the year — combined with that of any associated employers — exceeds $5,000,000 loses the exemption entirely for that year, not just on the portion above $5 million. At that point EHT is owed on full payroll at the top graduated rate, with no $1 million deduction at all. For a business approaching $5 million in combined payroll, the difference between qualifying and not qualifying for the exemption is worth tens of thousands of dollars, and it depends on a number — payroll, including any associated companies' payroll — that only your own books can confirm.
Source: Ontario Ministry of Finance — Guide for Employers, Employer Health Tax; Government of Ontario — EHT tax exemption.
Associated employers share one exemption, not one each
If your Toronto business is associated with other corporations under common control — a holding company structure, related operating entities, or a group under shared ownership — the group does not each get a separate $1 million exemption. Associated employers must share a single exemption, allocated among themselves under a written agreement, and every member of the group must be listed on an Associated Employers Exemption Allocation form filed with the Ministry of Finance by March 15. If the Ministry doesn't receive a completed form covering every associated entity — including ones with no payroll or no allocated exemption — the exemption can be denied for the whole group, not just the member that missed the filing. The combined payroll of associated employers is also what counts toward the $5 million eligibility cliff above, so a group that looks fine on any single entity's numbers can still be over the line in aggregate.
Source: Government of Ontario — EHT and associated employers.
Filing and payment mechanics
Employers below the $1.2 million instalment threshold can be set up to remit annually rather than monthly. Every eligible employer, whatever their remittance frequency, files an annual return due March 15 of the following year, reconciling instalments paid (if any) against actual total remuneration for the year. Getting the remittance frequency wrong in either direction — remitting monthly when annual filing would have sufficed, or missing the switch to monthly once payroll crosses $1.2 million — creates unnecessary reconciliation work or, in the second case, exposure to interest.
Source: Ontario Ministry of Finance — Guide for Employers, Employer Health Tax.
A Q3 EHT checklist for growing Toronto businesses
- Project full-year 2026 Ontario remuneration now, not just year-to-date actuals, so you know before Q4 whether you're heading toward $1.2 million (instalments) or $5 million (exemption loss).
- Add up associated employers' payroll together, not entity by entity, when checking either threshold — a group under common control is measured on combined remuneration.
- Confirm your Associated Employers Exemption Allocation form is current if your corporate structure changed this year — an outdated or missing form risks the exemption for every member of the group.
- If you're near $1.2 million, confirm your remittance frequency with the Ministry before you're technically late on a monthly instalment you didn't realize was now required.
- Diarize the March 15 annual return regardless of remittance frequency — it's the reconciliation point whether you paid monthly or not at all during the year.
Where this fits with your other 2026 payroll costs
EHT is one line in the same statutory payroll-cost stack as WSIB premiums, CPP (including the second additional CPP contribution), and EI — none of which move in isolation, and a Q3 check is a natural point to review them together rather than as each filing deadline arrives separately. See our Ontario Employer Health Tax guide for the current exemption and instalment figures in one place, and our recent look at WSIB's 2026 rate cut and earnings ceiling for the other payroll-cost number that moved this year.
Key takeaways
- The EHT exemption is fixed at $1,000,000 through 2029 — the inflation adjustment originally due in 2024 was postponed.
- The applicable tax rate is graduated by total payroll, from 0.98% up to 1.95% once total Ontario remuneration exceeds $400,000.
- Employers projecting over $1,200,000 in Ontario remuneration must remit monthly, due the 15th of the following month.
- Employers whose payroll — combined with any associated employers — exceeds $5,000,000 lose the exemption entirely for that year, not just on the excess.
- Associated employers share one exemption via a written allocation agreement filed by March 15; a missing or incomplete form can cost the whole group its exemption.
If your Toronto-area business is approaching either threshold, your corporate structure changed this year, or you simply want your full 2026 statutory payroll-cost stack — EHT, WSIB, CPP2, and EI — checked together, RN Canada works with Toronto-area owner-managed businesses on exactly this kind of payroll compliance review.