How Bonus Tax Works

A bonus is taxed as ordinary income at your marginal rates. There is no separate bonus tax rate in Australia. The reliable way to calculate tax on a bonus is the marginal method: work out tax on salary plus the bonus, subtract tax on salary alone, and the difference is tax on the bonus itself. On a salary of $80,000 with a $10,000 bonus in 2025-26, that method gives tax on the bonus of $3,200 and a net bonus of $6,800.

To run your own figures, use our bonus tax calculator. For the full annual position, use our income tax calculator.

Why a bonus looks heavily taxed in one pay

In the pay run where a bonus is paid, withholding responds to the total paid in that period. If normal pay and a large bonus land together, withholding for that single pay can look as though the bonus was taxed at a very high rate.

The pay run sees one unusually large payment, not your settled annual income. Withholding is built to collect tax progressively during the year, so a large one off amount attracts large withholding in that run. The ATO approach for bonuses and similar lump sums spreads the bonus across the year to reduce this distortion, but bonus month can still show much more withholding than a normal pay.

The key distinction is withholding versus final tax. Withholding is what was collected in that pay. Final tax is calculated on total income for the financial year at return time. A bonus can be heavily withheld in one pay and still only bear tax at your normal marginal rate for the year. If too much was withheld, the excess is refunded.

A bonus also does not push your whole income into a higher bracket. Tax works in slices: only the portion in a higher bracket bears that higher rate.

The marginal method

Our calculator uses three steps:

1. Calculate annual tax and Medicare levy on salary alone.
2. Calculate annual tax and Medicare levy on salary plus the bonus.
3. Subtract the first result from the second. The difference is tax on the bonus.

This mirrors the way a lump sum approach spreads a bonus across the year, instead of pretending that amount will be paid every pay period. It is also easy to verify by hand from the resident tax table below.

The method works the same for commissions and most lump sum payments of ordinary income. They are not a special category. They increase taxable income for the year, and the slice they occupy determines the rate they bear.

Super can also apply. Bonuses are generally ordinary time earnings for super guarantee purposes if they relate to ordinary hours of work, so SG is usually payable on them. A bonus for work outside ordinary hours may be treated differently.

Resident tax tables

These are the ATO resident rates from our rates sources, excluding the Medicare levy. The levy, at 2 percent of taxable income for most people, is added separately in the example. Thresholds are the same in both years: $18,200, $45,000, $135,000 and $190,000. The difference is the second bracket rate and resulting bases: 16 percent in 2025-26, cut to 15 percent in 2026-27.

The bases are consistent with the slices below them. In 2025-26, the second slice spans $26,800, from $18,200 to $45,000. At 16 percent, that is $4,288, the base for the next bracket. In 2026-27, $26,800 at 15 percent is $4,020. Higher bases build the same way, by adding each lower slice in full.

These tables exclude tax offsets, the Medicare levy surcharge and HELP repayments, outside version 1 of our calculators.

Worked example: $80,000 salary, $10,000 bonus

This is the verified example from the tests for our bonus calculator, for 2025-26 with Medicare levy included.

The result fits where the bonus sits. The whole bonus falls in the 30 percent bracket, because salary already fills the lower brackets and the total stays below $135,000. Tax is therefore 30 percent income tax, $3,000, plus 2 percent levy, $200: a combined $3,200, or 32 percent of the bonus.

If a bonus pushed income across a threshold, part would bear the next rate. A bonus lifting income above $135,000 would have its lower portion in the 30 percent slice and its upper portion at 37 percent, plus levy. The marginal method handles that automatically, because it recalculates tax at the higher total.

What happens at tax return time

At return time, the ATO calculates tax on your actual total taxable income, including the bonus, and credits all withholding from the year against it.

If withholding on the bonus pay was set as though that large amount would be paid regularly, you will likely have over withheld, and the excess comes back in your refund. If withholding used a spreading method and matched your final marginal position closely, there may be little adjustment. Either way, the bonus is taxed once, at the rates for your total income.

Keep the bonus payslip with your tax records.

Estimating a bonus before it is paid

Use the marginal method with your expected annual salary. Enter salary and bonus in the bonus tax calculator, select the correct financial year, then cross check annual totals in the income tax calculator using salary alone and salary plus bonus.

Read the result as an estimate of final tax on the bonus, not a promise of withholding in the bonus pay run, which can be higher for the reasons above. Planning around the net figure from the marginal method, $6,800 on a $10,000 bonus in the example, is more realistic for the year than planning around one heavily withheld pay.

This guide is general information only and is not tax or financial advice. For a large payment or a change in employment, consider a registered tax agent.