How Bonuses Are Taxed in Canada (2026)

The short version

A bonus is not taxed at a special, higher rate. For tax purposes it is ordinary income, taxed exactly like the rest of your pay at your marginal rate.

What confuses people is the cheque. A bonus often arrives with a much larger slice taken off than a regular paycheque, which makes it look like the government is punishing the extra income. It is not. The difference is withholding, the amount your employer holds back, and withholding is an estimate that gets reconciled when you file. If too much was held back, you get it returned as part of your refund.

Withholding is not the same as tax

Every time you are paid, your employer estimates the tax owing and remits it on your behalf. That estimate is withholding. Your actual tax is settled once a year when you file your return, where your total income and all your credits are added up properly.

For a bonus, the employer often applies a withholding method that assumes the bonus is layered on top of your annualized salary, which can push the held-back amount up. That makes the bonus cheque look heavily taxed. But the only thing that determines your real tax bill is your total income for the year and your marginal rate, not how the withholding was calculated on any single cheque.

If withholding across the year adds up to more than your actual tax, the excess comes back as a refund. If it adds up to less, you owe the difference. The bonus does not change that arithmetic; it just shifts where the withholding landed.

What a bonus really costs at your marginal rate

Because a bonus sits on top of your other income, the tax on it is set by your marginal rate at that point. Consider someone earning $90,000 in Ontario who receives a $10,000 bonus, taking them to $100,000.

The income tax on that extra $10,000 is the difference in total tax between the two income levels. At $90,000 the engine computes federal tax of $12,342.73 and provincial tax of $5,369.52. At $100,000 those become $14,392.73 federal and $6,284.52 provincial. The increase across both is the true income tax cost of the bonus, and it reflects the marginal rate in that band, not a penalty rate.

The effective rate on your whole income still stays well below the marginal rate: it is 26.4% at $100,000. The bonus is taxed at the margin, but your average tax rate barely moves. The take-home pay calculator shows the full deduction breakdown at both income levels for any province.

Why the cheque looks so small

Three things stack up on a bonus cheque and make the deduction look severe.

First, the withholding method described above tends to hold back at the higher end. Second, if you have not yet hit the annual CPP and EI maximums, those come off the bonus as well, the same as any pay. Third, a bonus is often a large single amount, so the dollar figure withheld is large even when the rate is normal.

None of these mean the bonus was taxed unfairly. The CPP and EI portions count toward your annual maximums and stop once you reach them — in fact, a bonus can push you past the CPP and EI ceilings earlier in the year — and any over-withheld income tax is returned at tax time.

How to keep more of it

The cleanest way to reduce the tax on a bonus is to shelter it. If you have RRSP room, directing some or all of a bonus into an RRSP gives you a deduction at your marginal rate, which is exactly the rate the bonus would otherwise be taxed at. That can offset the tax on the bonus entirely if you contribute enough.

Some employers will even pay a bonus directly into your RRSP without withholding income tax on the contributed portion, because they know the deduction will cancel the tax. The RRSP Tax Refund Calculator shows what a contribution of that size is worth at your income and province.

Frequently asked questions

Are bonuses taxed at a higher rate than salary? No. A bonus is ordinary income taxed at your marginal rate. It only looks higher because of how tax is withheld from the cheque.

Why was so much taken off my bonus? Employers often withhold a bonus as if it is stacked on your annualized salary, which holds back more. CPP and EI may also apply if you have not hit the annual maximums. Any over-withheld income tax comes back as a refund.

Will I get some of my bonus tax back? If the total tax withheld from you over the year exceeds your actual tax owing, the excess is returned as a refund when you file.

Can I avoid tax on a bonus by putting it in an RRSP? Contributing a bonus to an RRSP gives you a deduction at your marginal rate, which can offset the tax on the bonus. You need available RRSP room to do it.

Do CPP and EI come off a bonus? Yes, unless you have already reached the annual CPP and EI maximums for the year, at which point those deductions stop.