How bonuses are taxed

A bonus is employment income, taxed the same way as your salary: it’s added to your income for the year you receive it and taxed at your marginal rate. What’s different is how your employer withholds tax from it, which is why a bonus cheque can look heavily taxed.

A bonus counts in the year you receive it

Your employer reports a bonus on your T4 slip as employment income for the year it’s paid, not the year you earned it. A bonus for your 2025 work that’s paid in January 2026 belongs on your 2026 return.

A bonus is also part of your pensionable and insurable earnings, so CPP contributions and EI premiums are deducted from it, just as they are from regular pay. Reading your pay stub explains how those work.

Why a bonus is taxed at your marginal rate

Income tax works in brackets. Each rate applies only to the part of your taxable income that falls inside its bracket, not to all of it, and provincial or territorial tax applies on top of federal tax. Because a bonus is added to the income you already have, it’s taxed at the rate for the highest bracket your income reaches: your marginal rate.

For 2025, for example, the federal rate is 14.5% on taxable income up to $57,375 (a full-year rate, because the lowest rate was cut on July 1, 2025), and 20.5% on the portion above that, up to $114,750. If your salary already puts you in that second bracket, each dollar of bonus is taxed at 20.5% federally, plus your province’s rate. A large bonus can push part of your income into a higher bracket, but only the part above the threshold is taxed at the higher rate. The rest of your income isn’t taxed any more heavily.

Find your combined federal and provincial rates in the income tax brackets table, or compare your tax with and without the bonus in the income tax calculator.

How your employer withholds tax on a bonus

Your employer doesn’t treat a bonus like regular pay. The CRA gives employers a separate method for bonuses and other irregular payments:

1. Divide the bonus by the number of pay periods in the year, and add the result to one regular pay.
2. Work out the tax on that higher pay, then subtract the tax on the regular pay.
3. Multiply the difference by the number of pay periods. That’s the tax taken off the bonus.

In effect, your employer spreads the bonus over the whole year and withholds roughly the extra tax it would add to a year of your regular pay. If you asked on your TD1 form for extra tax to be taken off each pay, that amount is added too. A second bonus in the same year is calculated on top of the first, so it’s withheld at the rate that applies after the first one. (If your total pay for the year, including the bonus, is under $5,000, your employer instead withholds a flat percentage of the bonus.)

Your return settles the difference

The tax withheld from a bonus is an estimate based on your regular pay, so it won’t always match the tax you end up owing on it. When you file, you claim all the income tax deducted at source on your slips (box 22 of your T4) against the tax you owe for the year. The tax taken from your bonus counts the same way as the tax taken from the rest of your pay.

Ways to keep more of a bonus

Have it paid into your RRSP or FHSA. If your employer deposits part of your bonus directly into your RRSP or FHSA through payroll, it can subtract that amount before working out the income tax to withhold, as long as it has reasonable grounds to believe you can deduct the contribution. You need enough unused contribution room for the deduction.

Contributing on your own? If you’ll make an RRSP contribution yourself, or you have other deductions or non-refundable credits that aren’t part of the TD1 form, you can ask the CRA to reduce the tax withheld at source with Form T1213, Request to Reduce Tax Deductions at Source.

Either way, the deduction comes off your taxable income, so it saves tax at your marginal rate, the same rate the bonus is taxed at. See RRSPs: how contributions save tax and FHSA and the Home Buyers’ Plan for how contribution room works.

In short

• A bonus is ordinary employment income, taxed in the year you receive it at your marginal rate.
• Your employer uses a special method to withhold tax from it. It’s an estimate; your return settles the actual tax.
• CPP and EI are deducted from bonuses too.
• Having a bonus paid into your RRSP or FHSA through payroll can lower the tax withheld, if you have the room.