Bonus tax
How discretionary bonuses are taxed at the marginal rate — often higher than the regular paycheck because the bonus pushes through a bracket.
A bonus is taxed at the recipient's MARGINAL rate, not their effective rate. That is why bonus paychecks often feel disproportionately heavily taxed compared to the regular monthly payslip. A UK earner on £55,000 has an effective rate of ~23% on regular pay, but a £5,000 bonus is taxed at the marginal 42% (40% income tax + 2% NI) because every pound of bonus is added on top of an income already in the higher-rate band.
Country specifics: UK — bonuses are taxed identically to salary through PAYE, at the marginal rate. US — federal supplemental withholding is a flat 22% (up to $1M, 37% above), but actual tax owed at year-end is the marginal rate; any over-withholding refunds in the annual return. Germany — bonuses (Einmalzahlung) are added to annual income and taxed via the Fünftelregelung in some cases to soften progression. France — bonuses are taxed as regular income but the PAS rate may be temporarily higher in the month received.
Pension contributions or salary sacrifice can sometimes 'redirect' a bonus into a tax-efficient wrapper before it hits the marginal rate — this calculator does not model bonus-handling strategies, but understanding the marginal rate is the foundation for any such decision.
Calculator pages that use this term
See also
- Marginal tax rate — The percentage paid in tax on the next unit of income earned — distinct from the average effective rate.
- Effective tax rate — Total deductions divided by gross pay — the single percentage that summarises the overall tax bite.
- Salary sacrifice (UK) — A UK arrangement where an employee gives up part of their gross salary in return for an employer-funded benefit — typically pension contributions, reducing both income tax and NI.