Bonus Tax Calculator

Why a bonus feels taxed harder than your salary

It usually is, at the margin. Your salary is taxed across every band from zero upwards, so its average rate is well below the rate on the last pound or euro. A bonus arrives entirely on top, so all of it is taxed at that top rate. A 25% effective rate on the salary and a 42% rate on the bonus are perfectly consistent with each other.

A bonus can also push you across a threshold, which is where the surprises live. Losing a personal allowance, crossing into a higher band, or triggering a benefit taper part-way through the payment means the effective rate on the bonus alone can exceed any headline rate in the tax table.

Payroll withholding versus what you actually owe

Many payroll systems tax a one-off payment as though you now earn that much every month. The withholding in the month of the bonus is then far too high. In cumulative systems this corrects itself over the following months or at year end; in others you have to reclaim it. Either way, the amount withheld in the bonus month is often not the amount you owe.

The figure this calculator gives you is the underlying liability on the bonus, not the withholding. If your payslip shows less than this, expect a correction; if it shows more, expect one in the other direction.

Timing, deferral and the 13th-month payment

Where you have any say over timing, the question is whether the payment lands in a year where it is taxed at a lower marginal rate: a year with a career break, a period of part-time work, or a move to a different tax residence. Deferring into a year in which you also expect a bonus rarely helps.

In countries with a contractual 13th- or 14th-month salary, the payment is part of annual compensation rather than a discretionary extra, but the arithmetic is identical. It sits on top of the rest of the year's income and is taxed at the rate that applies there.

What this calculates, and why your payslip will disagree

This computes what a bonus actually COSTS you across the tax year: your total tax with the bonus, minus your total tax without it. That is the figure worth planning against, and it is not the figure on your payslip.

Payroll computes something different — how much to withhold in the month the bonus is paid — and every country does it differently. US employers commonly apply a flat 22% supplemental rate that bears no necessary relation to your bracket. Dutch payroll uses the bijzonder tarief, set from LAST year's income. Australian payroll spreads the payment notionally across the year. German payroll may apply the one-fifth rule if the payment qualifies as multi-year compensation. The annual assessment reconciles all of them, but the gap between the payslip and the truth is where the "my bonus was taxed at 50%" complaints come from.

So if this calculator and your payslip differ, both can be right. Use this one to decide whether a bonus is worth negotiating for, or how much of it to divert into a pension; use the payslip to predict your bank balance that month.

Thresholds are what actually hurt

The marginal rate is only half the story. The expensive part of a bonus is usually a threshold it pushes you across, because those effects apply to more than the bonus itself. In the UK, income above £100,000 withdraws the Personal Allowance at £1 for every £2, producing an effective 60% band; for a parent, crossing £60,000 starts clawing back Child Benefit. In Australia, a bonus that lifts income over the Medicare Levy Surcharge threshold without private hospital cover triggers a charge on the whole year's income. In the US, it can cross the Additional Medicare Tax threshold or a credit phase-out.

None of those appear in a headline rate table, and all of them are visible in the before-and-after comparison this tool makes. If the percentage lost looks higher than any rate you recognise, a threshold is the reason — and a pension contribution sized to bring you back under it is frequently the highest-return decision available to you that year.