Ontario employers pay the Employer Health Tax (EHT) on their Ontario payroll once it exceeds an exemption threshold: eligible employers can exempt the first $1,000,000 of annual Ontario payroll for the 2026 tax year, with rates that graduate upward as payroll grows, topping out at a 1.95% top rate. Employers with total Ontario payroll above $5,000,000 cannot claim the exemption at all and pay EHT on the full amount. This guide explains the exemption, the graduated-rate structure, the $5,000,000 cutoff, and how Ontario's EHT compares with British Columbia's and Alberta's payroll-tax rules for 2026.
How the Ontario Employer Health Tax works in 2026
The EHT is an annual payroll tax paid by the employer — it is not deducted from employees' pay, unlike CPP, CPP2 and EI. It is based on total Ontario remuneration: broadly, salaries, wages, bonuses, and most other taxable employment payments made to employees who report for work in Ontario, or whose employer pays them from an Ontario permanent establishment.
The core structure for 2026:
| Ontario payroll | Exemption available? | How EHT applies |
|---|---|---|
| Up to $1,000,000 | Yes | Fully exempt — no EHT owing |
| Above $1,000,000, up to $5,000,000 | Yes, on the first $1,000,000 | Graduated rates apply to payroll above the exemption, rising toward the 1.95% top rate as payroll grows |
| Above $5,000,000 | No | EHT applies to the entire payroll, with no $1,000,000 deduction |
The $1,000,000 exemption is the anchor figure most Ontario small and mid-sized employers care about — payroll at or below that level owes no EHT at all. Associated employers (a corporate group under common control) share a single $1,000,000 exemption rather than each entity claiming its own, so splitting payroll across related companies does not multiply the benefit.
Graduated rates, not a single flat rate
Unlike a flat-rate payroll tax, Ontario's EHT rate is graduated: the applicable rate increases in steps as total Ontario payroll grows, reaching the 1.95% top rate for the largest employers. Because the exact rate an employer pays depends on precisely where its payroll falls within these graduated bands, and the current band thresholds are set out in Ontario's EHT legislation and guidance, employers should confirm the specific rate for their payroll level directly against the current Ontario EHT rate schedule or with their accountant rather than assume a single flat percentage applies. The one figure that is fixed across the graduated structure is the 1.95% ceiling — no employer eligible for the exemption pays more than that on any portion of payroll.
The $5,000,000 cutoff: losing the exemption entirely
The most consequential rule for growing Ontario employers is the $5,000,000 payroll cutoff. It is not a gradual phase-out like a notch rate — it is a hard line:
- At or below $5,000,000 in total Ontario payroll: the employer claims the $1,000,000 exemption, and EHT applies only to payroll above that exemption at the graduated rates.
- Above $5,000,000 in total Ontario payroll: the employer loses the exemption entirely and pays EHT on its whole payroll, not just the amount above $1,000,000 or above $5,000,000.
This makes the transition across $5,000,000 far more expensive than the transition across the $1,000,000 exemption threshold itself, because crossing $5,000,000 does not just add tax on the incremental payroll — it removes the exemption on everything already below it. Employers approaching that level should model the total EHT cost on both sides of the threshold well before payroll actually crosses it, rather than discovering the change at year-end filing.
Next inflation adjustment: January 1, 2029
The $1,000,000 exemption threshold is scheduled for its next inflation adjustment on January 1, 2029. Until then, Ontario employers should plan on the exemption holding at its current level through 2026, 2027 and 2028 — it will not rise automatically each year the way some other thresholds do. Payroll budgets and multi-year hiring plans built on an assumption of a rising exemption before 2029 would be planning on a number that is not scheduled to move.
Ontario EHT vs BC EHT vs Alberta: a three-province comparison
Ontario and British Columbia both levy an Employer Health Tax; Alberta levies none.
| Feature | Ontario | British Columbia | Alberta |
|---|---|---|---|
| Exemption threshold | $1,000,000 | $1,000,000 | N/A — no EHT |
| Rate structure | Graduated bands, rising with payroll | Full exemption, then a 5.85% notch rate on $1M–$1.5M, then flat 1.95% above $1.5M | N/A |
| Top rate | 1.95% | 1.95% | N/A |
| Exemption lost entirely above | $5,000,000 | No equivalent hard cutoff — the notch structure phases the exemption out by $1,500,000 | N/A |
| Next scheduled exemption adjustment | January 1, 2029 | Last adjusted 2024 | N/A |
Ontario and BC converge on the same $1,000,000 exemption and 1.95% ceiling, but they get there differently: BC's notch-and-flat design effectively removes the benefit of its exemption by $1,500,000 in payroll, while Ontario keeps a graduated structure up to a much higher $5,000,000 payroll before removing the exemption outright. See our BC Employer Health Tax guide for the BC mechanics in full, and our Alberta payroll guide for why Alberta employers skip this tax entirely.
CPP, CPP2 and EI apply identically regardless of province: CPP at 5.95% on pensionable earnings up to the $74,600 Year's Maximum Pensionable Earnings (YMPE), CPP2 at 4% on the $74,600–$85,000 band, and EI at the standard employee/employer split. Only the provincial payroll tax layer — EHT in Ontario and BC, none in Alberta — differs by location. Model your own numbers with the employer payroll cost calculator.
Another 2026 date for Ontario payroll: the minimum wage increase
Employers budgeting Ontario payroll for the second half of 2026 should also note that Ontario's general minimum wage rises from $17.60 to $17.95 per hour on October 1, 2026. This does not affect EHT calculations directly, but it does raise the total remuneration base against which EHT and other payroll costs are calculated for minimum-wage and near-minimum-wage staff.
How RN Canada helps
RN Canada is an accounting and advisory firm headquartered in Edmonton, with a Vancouver office, serving Ontario and Toronto-area employers remotely from our head office. We help employers determine when EHT registration and filing obligations apply, model the graduated rate bands and the $5,000,000 exemption cutoff against actual and projected Ontario payroll, and account for the October 2026 minimum wage change in payroll budgets. Our founder, Ozgur Duymaz, holds the CPA (Canada), ACCA (UK) and CMA (US) designations. Explore our bookkeeping & payroll service, model costs with the employer payroll cost calculator, and see how we serve businesses in Ontario and Toronto.
Frequently asked questions
For the 2026 tax year, eligible private-sector employers can exempt the first $1,000,000 of their total Ontario payroll from the Employer Health Tax (EHT). Only remuneration above that $1,000,000 exemption is subject to EHT, and the exemption is shared among associated employers rather than granted separately to each one.
The Employer Health Tax uses graduated rates that increase as total Ontario payroll grows, topping out at a 1.95% top rate for the largest payrolls. The exact rate that applies to a given employer depends on where its total payroll falls once the exemption, where applicable, has been applied.
Employers with total annual Ontario payroll above $5,000,000 cannot claim the $1,000,000 exemption at all and pay EHT on their entire payroll. This is a hard cutoff, not a gradual phase-out — once a group's combined Ontario payroll crosses $5,000,000, none of the payroll is exempt.
The $1,000,000 exemption threshold is scheduled for its next inflation adjustment on January 1, 2029. Employers should not assume the exemption will rise before then, and should plan payroll budgets on the current threshold holding steady through 2026, 2027 and 2028.
No. Alberta has no Employer Health Tax and no provincial payroll tax of any kind. An employer with identical payroll pays EHT in Ontario (once past the exemption) and in British Columbia (once past its own exemption), but nothing equivalent in Alberta, which is a real cost difference for employers choosing where to base staff.
Both provinces exempt the first $1,000,000 of payroll and cap out at a 1.95% top rate, but the mechanics differ. BC uses a three-tier structure — full exemption, then a notch rate on the excess between $1,000,000 and $1,500,000, then a flat 1.95% on the whole payroll above $1,500,000. Ontario uses graduated rate bands as payroll grows and separately denies the exemption altogether above $5,000,000 in payroll.
Yes. Ontario's general minimum wage rises from $17.60 to $17.95 per hour on October 1, 2026. This is separate from the Employer Health Tax but is another payroll-budgeting date employers with Ontario staff should mark for the second half of 2026.
Yes. The Canada Pension Plan (CPP), the CPP2 top-up, and Employment Insurance (EI) are federal programs with the same rates, thresholds and employer/employee split across every province, including Ontario. Only provincial payroll taxes like EHT vary by province — Ontario and BC both levy one, Alberta levies none.