Taxes aren’t exactly exciting, but if you run payroll, there are some rules you need to know—you can’t really avoid them as an employer. This post will explain Ontario’s Employer Health Tax (EHT), including when it applies, how it’s calculated, and what it means for your business.
The Ontario Employer Health Tax Act, introduced in 1990, is a provincial payroll tax that helps fund the Ontario Health Insurance Plan (OHIP). And who pays it? Ontario employers.
If you’re thinking, “I just run a small business—do I really have to pay this?”—the short answer is: Yes… but maybe not.
Let’s break it down.
Does my business need to pay EHT?
If you pay employees remuneration like salaries, wages, bonuses, taxable benefits, or stock options, you may need to pay EHT. That said, some conditions and exemptions may leave you off the hook.
Here’s a breakdown of employers who have to contribute to EHT:
- Employers with employees who physically report to their permanent establishment in Ontario.
- Employers with employees who are attached to their permanent establishment in Ontario.
- Employers with employees who do not report to work at any of your permanent establishments but are paid from or through your Ontario permanent establishment.
- Employers who have Ontario remuneration (payroll total) over the tax exemption limit.
What is an EHT exemption?
This is where some employers may be off the hook so its important to pay attention. An EHT exemption is the portion of an employer’s payroll that is not subject to the Employer Health Tax (EHT). Only payroll above the exemption threshold is taxable. This is aimed to provide small eligible Ontario employers some tax relief.
Is my business eligible for the EHT exemption?
Not all employers qualify for the exemption. You may be able to claim it if you meet all of the following criteria:
- You are an eligible employer as defined under the EHT Act.
- You pay income taxes.
- You are not controlled by any level of government (for example, your board of directors does not include municipal representatives).
- Your Ontario payroll for the year (including payroll from any associated employers) is less than $5 million, or you are a registered charity.
EHT for associated employers in Ontario.
What is an associated employer?
A group of associated employers consists of businesses that share ownership or have a combination of ownership and family relationships (related by blood, marriage, or adoption).
To determine if a business is associated with another employer, check Schedules 9 and 23 of the corporation’s Federal T2 Corporation Income Tax Return. If the employer is not incorporated, the business owner should have this information.
If you are an eligible employer that is part of an associated employer group, you must enter into an agreement to share the EHT exemption for the year and complete the Associated Employers Exemption Allocation form. This allows you to divide the exemption among group members for the year. Employers are considered associated if they are connected at any point during the year.
If you are—or think you may be—an associated employer, here’s everything you need to know.
How much is my Ontario EHT exemption?
Small employers EHT exemption.
Employers who qualify are exempt from EHT on the first $1 million of Ontario payroll. In other words, if your annual payroll is $1 million or less, you don’t have to pay any EHT.
While the Ontario government usually updates the EHT exemption every five years, the limit was increased during the COVID-19 pandemic to help businesses and is set to remain at $1 million through 2028.
Associated employers EHT exemption.
Each group of associated employers can make only one EHT exemption claim per year, up to $1 million, if eligible. The exemption must be shared among all group related entities through an Associated Employers Exemption Allocation Agreement.
To claim this exemption, the group must consider the total remuneration for each employer in the group. If the combined payroll exceeds $5 million, the group does not qualify for the exemption.
Charity EHT exemption.
Charities that have been registered for a full year are eligible for a $1 million exemption regardless of the amount of remuneration it paid during the year, even if it exceeds $5 million.
Important: Charities can only claim the exemption if they meet the eligible employer rules under the EHT Act. For example, they cannot claim it if their organization has a municipal representative on the board or is controlled by any level of government.
Registering for an EHT account with the Ontario Ministry of Finance.
The good news is registering for an EHT account with the Ontario Ministry of Finance is pretty easy. Once you do, the ministry will send you annual returns.
There are 2 circumstances in which you will need to register:
- You’re an employer who isn’t eligible for the tax exemption. OR
- You’re an employer who is eligible, but your payroll exceeds your allowable exemption.
To register for an EHT account, start with the Ontario Ministry of Finance form. But, before diving in, make sure you have the following details for your organization:
- Legal name
- Trade name
- Business address
- Mailing address
- Telephone and fax numbers
- Name of contact person or authorized representative
- Payroll start date
- Payroll frequency
- Federal business number (BN)
- Employer type (associated, multiple accounts or public sector employer)
Next, there are three ways to complete your registration:
- Online using the ONT-TAXS online portal.
- In-person by calling 1-866-ONT-TAXS (1-866-668-8297) and setting up an appointment with a Ministry of Finance representative.
- Using a self-help workstation at a ServiceOntario centre in your area.
For questions at any time throughout the process, you can contact the Ministry of Finance at 1-866-ONT-TAXS (1-866-668-8297). To learn more about registering for an EHT account, you can also visit the Employer Health Tax page on the Ontario website.
Calculating EHT.
Calculating the amount of EHT an employer pays uses a simple formula.
[the Ontario payroll for the year – the tax exemption] x the applicable tax rate
In other words, take your total Ontario remuneration for the year, subtract the amount of the tax exemption and then multiply that number by the applicable tax rate.
Remuneration is the employment income (box 14 of the T4 slip) that is taxable under sections 5, 6, and 7 of the federal Income Tax Act.
Beyond salary and wages, remuneration also includes:
- tips and gratuities paid through an employer
- bonuses
- commissions and other similar payments
- vacation pay
- taxable allowances and benefits
- directors’ fees
- payments for casual labour
- amounts paid by an employer to top up benefits
- advances of salaries and wages, and
- stock option benefits
Ontario EHT rates.
As for the EHT tax rates, those vary depending on your payroll totals for Ontario. See the chart below to see how the rate is assigned.
These rates are accurate as of January 2026.
Check the Ontario Ministry of Finance EHT page for the most up-to-date rates.
For example, an employer with $155,000 of Ontario payroll, without any tax exemption, will have a tax rate of 0.98%, and would pay EHT of $1,519 for the year. ($155,000 x 0.0098 = $1,519.)
Paying EHT.
Generally, paying EHT is handled by filing and paying an annual return on or before March 15th of the following calendar year. That changes if your payroll for the year is more than $1.2 million.
As of 2021, for employers with Ontario remuneration that’s more than $1,200,000, paying EHT is done in monthly installments, due by the 15th of the following month. You’ll still file an annual return on or before March 15th of the following calendar year, but keep in mind that the payment schedule is more frequent.
Calculating EHT installment payments
Calculating how much you’d pay for your EHT installment payment works in a very similar way to calculating EHT in general. Here’s an example of what it would look like.
Say your monthly payroll is always $210,000. In the year, that’d mean you have $2,520,000 for your annual payroll, but keep in mind, the first $1 million is exempt from the tax, so from January until May, you wouldn’t pay tax yet. Because your total to that point would only be $1,050,000, that total is still within the $1.2 million threshold that would trigger the monthly installments.
Come June is when you’d hit that threshold since you’ll have processed a total of $1,260,000 in payroll. But, again, that first million dollars is exempt, so the payment you’ll be making is only on the $260,000 for June. Take that, multiply it by your tax rate (in this case 1.95%), and then voila, you have the payment to make: $5,070.
For each month remaining, take the $210,000 and multiply it by the tax rate (1.95%) to get the amount owed for the monthly installment: $4,095.
Wrapping up EHT.
So, there you have it.
There’s a strong possibility that as a new business owner you will not be required to pay any EHT, but as you grow to reach over $1 million of Ontario payroll, you’ll want to keep this Ontario tax in mind.
If you’d like more information or have additional questions about EHT, visit Ontario’s Ministry of Finance EHT page, which breaks down these calculations, filing an EHT return, penalties and more.
The advice we share on our blog is intended to be informational. It does not replace the expertise of accredited business professionals.
