Ontario Employer Health Tax (EHT): Complete Guide for 2025

Introduction

A missed EHT remittance can turn a routine payroll month into an expensive problem. I have seen a small construction firm in London face a penalty that wiped out two months of profit because they did not realize their total annual payroll had crossed the $490,000 threshold. The Ontario Employer Health Tax (EHT) is a payroll tax that employers pay on the total amount of remuneration paid to employees who report to work in Ontario. It is separate from CPP, EI, and income tax deductions. Understanding your obligations under the payroll tax Ontario employer health tax EHT regime is critical for every employer in the province, whether you run a three-person shop or manage payroll for 500 staff.

What Is the Ontario Employer Health Tax (EHT)?

The Employer Health Tax is a provincial tax that funds Ontario's healthcare system. Unlike the federal health transfer, it is paid entirely by employers based on their Ontario payroll. The tax applies to remuneration (salaries, wages, bonuses, commissions, taxable benefits, etc.) paid to employees who report for work in Ontario. If you have employees working remotely from Ontario, they are generally subject to EHT even if your head office is elsewhere.

The key feature is a graduated threshold: for 2024, the first $1,000,000 of remuneration is exempt for private-sector employers, but only if your total annual Ontario payroll does not exceed $5,000,000. If payroll exceeds $5 million, the exemption is gradually reduced until it is completely eliminated at $6,200,000 in payroll. There is also a smaller exemption for charitable and non-profit employers (first $490,000 exempt). Public sector employers (municipalities, hospitals, school boards) have no exemption and pay EHT on all remuneration at the applicable rate.

Who Must Pay EHT?

Every employer with a permanent establishment in Ontario and total Ontario remuneration over $490,000 in a calendar year must register and remit EHT. This includes corporations, partnerships, sole proprietors, trusts, and unincorporated associations. Non-resident employers with employees working in Ontario also have obligations. The $490,000 threshold applies to all employers except public sector and those who have chosen the associated employer method. If you are part of a group of associated employers, the exemption is shared, meaning the $1 million private-sector exemption is split among the group. This catches many small business owners who own multiple corporations.

What counts as remuneration? Everything that is subject to CPP and EI is also subject to EHT, plus some other amounts like taxable benefits, stock option benefits (when employment income), and allowances. Payments to independent contractors are not included unless the contractor is considered an employee under the common law test. This is a frequent area of dispute: misclassifying employees as contractors triggers an EHT liability plus penalties.

How to Calculate Your EHT Liability

Calculating EHT involves three steps: determine your total Ontario remuneration for the year, apply the exemption (if eligible), and multiply the taxable amount by the applicable rate. The rates are progressive based on your total payroll.

EHT Rates (2024)

Note: These rates can change each year. Always verify with the Ontario Ministry of Finance for the current year.

Step-by-Step Calculation Example

Let us work through a scenario. A small marketing agency in Toronto has 12 employees and total Ontario remuneration of $1,250,000 in 2024. They are a private-sector employer with payroll under $5,000,000, so they qualify for the $1,000,000 exemption. Their taxable amount is $1,250,000 - $1,000,000 = $250,000. At 0.98%, their EHT is $2,450 ($250,000 * 0.0098).

Now consider a construction company with two associated corporations. Combined, their Ontario remuneration is $1,800,000. Since they are associated, they share one $1,000,000 exemption. Taxable = $800,000. EHT = $7,840. If they had filed separately without association, each might have underreported.

Before vs. After Workflow:

Manual process: Someone totals all payroll records, manually checks the exemption threshold, applies the rate, calculates the tax, fills out the EHT return, writes a cheque, and mails it to the Ministry of Finance. If payroll changes mid-year, they have to re-estimate the annual total to adjust monthly/quarterly instalments. This is error-prone and time-consuming.

Automated process with payroll software: The system tracks year-to-date Ontario remuneration, automatically flags if you exceed the threshold, calculates the instalments based on estimates, generates the return, and creates a payment submission. Awditify's payroll module includes EHT tracking as part of its Canadian payroll feature. It automatically categorizes Ontario wages, applies the correct exemption, and produces the annual EHT return ready for filing.

Filing and Remitting EHT

EHT is an annual tax, but instalments are required during the year. The threshold for instalments depends on your estimated annual EHT liability:

• If your estimated EHT is $4,500 or less, you can pay the full amount by the annual return due date (March 15 of the following year).
• If EHT is more than $4,500 but less than $12,000, you must make quarterly instalments.
• If EHT is $12,000 or more, you must make monthly instalments.

For example, if your annual EHT is expected to be $15,000, you remit $1,250 per month starting in January. If you miss an instalment, interest and penalties start accruing from the due date.

The annual EHT return is due on March 15 of the next calendar year. You must reconcile your actual payroll with the instalments paid. If you underpaid, you need to remit the difference with interest. Overpayments can be refunded or applied to next year.

How to register: You can register for EHT through the Ontario Business Information System (one-key login). Once registered, you will receive an EHT account number. You also need to file an annual return even if you had no EHT payable (i.e., payroll under the exemption threshold) but your total Ontario remuneration exceeded $490,000.

Common Filing Mistakes

• Forgetting to include taxable benefits like employer-paid life insurance, group term life, and vehicle benefits.
• Misreporting for employees who split time between provinces. Only Ontario workdays count.
• Not accounting for associated employers. If you control multiple corporations, you must aggregate payroll.
• Using the wrong exemption. Private sector $1 million exemption only applies if total payroll is under $5 million.

Penalties and Interest

The Ministry of Finance applies interest on late or insufficient instalments and on unpaid balances. Interest rates are set quarterly and are currently around 9% per annum (compounded daily). Late filing penalties can be up to 10% of the tax due plus 1% per month for up to 12 months. If the failure to file is made knowingly or under circumstances of gross negligence, the penalty can be 25% of the amount.

Real-world consequence: A landscaping company in Mississauga failed to file EHT for three years because they thought their payroll was under the threshold. When the Ministry caught up, they owed $27,000 in back taxes plus $8,000 in interest and penalties. That came from one payroll review.

Who Is Exempt from EHT?

Aside from the exemption thresholds, certain employers are fully exempt:

• The federal government and its agencies.
• Diplomatic missions.
• Employers of First Nations individuals who live and work on a reserve.
• Some boards of education and hospitals (though they have different rules).

Most private businesses and nonprofits do not qualify for a full exemption; they only get the threshold exemption.

How Does EHT Interact with Other Payroll Obligations?

EHT is an employer cost, not a deduction from employees. It is in addition to CPP, EI, and provincial health premiums. For employers in Quebec, note that Quebec has its own health contribution (not EHT). Ontario EHT is separate.

Employers report EHT on the annual return, not on T4 slips. However, the T4 summary (Employer's Report) includes total remuneration which will be used by CRA but not for EHT. The Ontario Ministry of Finance does not share data with CRA seamlessly, so you need separate reporting.

Automating EHT Compliance

Given the complexity of thresholds, instalment calculations, and associated employer rules, many CPA firms and businesses turn to dedicated Canadian payroll software. Awditify's payroll module handles EHT automatically: it tracks Ontario remuneration, applies the correct exemption based on your total payroll, calculates instalments, and generates the annual return. This reduces the risk of errors and missed deadlines.

For accounting firms managing multiple clients, Awditify's practice management features allow you to handle EHT across all your clients from one dashboard. You can set reminders for filing dates, review instalment amounts, and prepare returns in bulk.

If you are just starting to understand payroll tax in Canada, our Canadian Payroll Guide: CPP, EI, and Income Tax for Small Businesses (2026) covers the full spectrum of deductions. And for a step-by-step on running payroll, see How to Run Payroll in Canada: Step-by-Step Guide for Employers.

For existing users, our Help Center provides a detailed walkthrough: How to Use Payroll Tax Settings in Awditify - WCB & EHT Guide.

Frequently Asked Questions

What is the Ontario Employer Health Tax (EHT) rate?

The EHT rate for private sector employers is 0.98% of total Ontario remuneration in excess of the exemption. For public sector employers, the rate is 1.95% with no exemption. Charitable and non-profit employers pay 0.98% on remuneration over $490,000. Always check current rates on the Ministry of Finance website as they can change.

Does EHT apply to independent contractors?

No, EHT only applies to remuneration paid to employees. Payments to genuine independent contractors are not subject to EHT. However, if the contractor is reclassified as an employee by CRA or the Ministry of Finance, you will owe EHT on those payments plus penalties. It is important to review your worker classifications annually.

How do I file EHT if my payroll is under $490,000?

If your total Ontario remuneration is over $490,000 but below the exemption threshold (for example, under $1 million for private sector), you still need to file an annual EHT return. You must register for an EHT account and submit the return even if no tax is owing. If your payroll never exceeds $490,000, you do not need to register or file.

Can I use software to calculate and remit EHT?

Yes. Using a Canadian payroll solution like Awditify simplifies the process. It tracks your year-to-date Ontario remuneration, applies the correct exemption, calculates instalments, and generates the annual return. This reduces manual errors and ensures you never miss a deadline. You can learn more about how Awditify handles EHT at our features page.

What happens if I miss an EHT instalment?

Interest is charged daily on late or insufficient instalments from the due date to the date of payment. The interest rate is set quarterly, typically around 9% per year. Additionally, if your total EHT is not paid by the annual due date (March 15), a late-filing penalty may apply: 5% of the balance owing plus 1% per month up to 12 months. The Ministry does send reminder letters, but it is your responsibility to file on time.

What to Do Next

Understanding EHT is not optional for Ontario employers. The threshold, exemption calculations, and instalment rules create a compliance burden that many businesses underestimate. The safest approach is to build EHT into your regular payroll process. If you handle payroll manually, consider moving to a platform that automates these calculations.

Awditify offers a complete Canadian payroll solution that includes EHT tracking, automatic instalment calculation, and return generation. It is designed for small businesses, accounting firms, and municipalities alike. To see how Awditify can simplify your payroll tax compliance, explore our small business pricing or book a demo.

Once you have EHT under control, the next decision is usually about managing other payroll complexities. Our Canadian Payroll Guide will help you master CPP, EI, and income tax deductions.