A bonus is taxed as ordinary income in Australia — it is added to your other income for the year and taxed at your marginal rate. The reason a bonus often feels heavily taxed when you receive it is that your employer’s payroll system annualises the bonus payment, temporarily pushing your projected income into a higher bracket for withholding purposes. Your end-of-year tax return corrects any excess withholding.
Why a Bonus Looks Heavily Taxed on Your Payslip
When your employer pays a bonus, the PAYG withholding calculation for that pay period treats the bonus as if you earn that amount every pay period for the full year. This inflates your projected annual income, pushing it into a higher tax bracket and resulting in a large tax deduction on your payslip.
Example:
- You earn $80,000 per year, paid monthly ($6,667/month)
- You receive a $10,000 bonus in October
- Your employer sees gross pay of $16,667 for October
- Annualised, that looks like $200,004/year — the top tax bracket
- Tax withheld for October will be much higher than a normal month
But when you lodge your tax return, the ATO sees your actual total income for the year ($80,000 salary + $10,000 bonus = $90,000). Tax is calculated on $90,000 and compared to total withholding. You receive a refund for any excess withheld.
What Tax Rate Applies to a Bonus?
Your bonus is taxed at your marginal tax rate — the rate on the highest portion of your income.
| Total income (salary + bonus) | Marginal rate on bonus |
|---|---|
| Below $18,200 | 0% |
| $18,201 – $45,000 | 19% |
| $45,001 – $135,000 | 32.5% |
| $135,001 – $190,000 | 37% |
| $190,001+ | 45% |
Plus the 2% Medicare levy.
If your salary is $100,000 and you receive a $20,000 bonus, your total income is $120,000 — all in the 32.5% bracket. Your effective marginal tax on the bonus is 32.5% + 2% = 34.5%.
Reducing Tax on a Bonus
There are legitimate strategies to reduce the tax impact of a bonus:
Salary sacrifice into super
If your employer allows it, you can salary sacrifice some or all of a bonus into super. Contributions are taxed at 15% in the fund rather than at your marginal rate (which may be 32.5%, 37%, or 45%). The concessional cap is $30,000 total per year — check how much of that you have available before using this strategy.
Claiming additional deductions
Additional allowable deductions in the same income year reduce your taxable income. For example, making work-related purchases, prepaying investment loan interest, or making additional personal super contributions and claiming them as a deduction can offset some of the bonus income.
These are all general information points — what works for your specific situation depends on your total income, existing deductions, and financial position.
Is a Sign-On Bonus Taxed Differently?
No. A sign-on bonus is ordinary income and taxed at your marginal rate the same as any other bonus. Some sign-on bonuses have repayment clauses — if you leave the employer within a set period, you must repay the gross amount or a proportion of it. Repaid amounts may be deductible in the year of repayment; this is a complex area and professional advice is recommended.
Commission and Bonuses
Commission income is also treated as ordinary income and taxed at your marginal rate. The PAYG withholding treatment for commission payments by employers follows similar annualisation principles to bonuses — expect withholding to appear high during high-commission months, with reconciliation at year-end.
Frequently Asked Questions
Why was so much tax taken out of my bonus? Your employer’s payroll system annualised the bonus payment, which projected your income into a higher tax bracket. This does not mean you paid more tax overall — your annual tax return reconciles the actual amount, and any excess withholding comes back as a refund.
Can I ask my employer to spread the bonus over multiple pay periods to reduce tax? The timing of income recognition is generally determined by when the income is received. Spreading payments across two financial years (for example, partially in June and partially in July) can affect the year in which the income is taxed, but this must be a genuine arrangement, not a retrospective restructure. Tax planning of this type requires professional advice.
If I donate my bonus to charity, can I avoid tax? A donation to a registered Deductible Gift Recipient (DGR) reduces your taxable income in the year you make the donation. If you donate the after-tax value of the bonus to a DGR, you will receive a deduction that reduces your tax bill. The income itself is still assessable — you cannot exclude it entirely.
What about performance shares or equity bonuses? Employee share scheme (ESS) rules are separate from ordinary bonus rules and can be complex — including deferred tax treatment. The ATO has specific ESS rules that govern when and how equity compensation is taxed.
This article provides general tax information. For advice tailored to your situation, speak with a registered tax agent or accountant. Find one through the Tax Practitioners Board register.