How Are Bonuses Taxed in Australia?
Bonuses in Australia are taxed as assessable income at your marginal tax rate, not at a separate "bonus tax rate."
The ATO treats every bonus, commission, incentive payment, and profit-share distribution as ordinary income. Your employer adds the bonus to your year-to-date earnings and withholds tax using either Schedule 5 (the supplementary payment method) or the standard PAYG withholding tables. The result is the same: the bonus is taxed at whatever income tax bracket your total earnings fall into for FY2025-26.
Australia does not impose a flat bonus tax rate the way the United States allows a 22% supplemental withholding method. Every dollar of bonus income flows through the same progressive tax brackets as salary, wages, and overtime. Use our Bonus Tax Calculator to see the exact withholding on your payment.
Three factors determine how much tax is deducted from your bonus:
- Your total gross income for the financial year (salary plus bonus)
- The marginal tax rate that applies to the income band your bonus falls into
- Whether your employer uses the Schedule 5 method or an annualised withholding approach
The Medicare levy of 2% also applies to bonus income, and high earners above $93,000 (singles without private hospital cover) face the "Medicare Levy Surcharge" of 1%–1.5% on top.
What Is the Marginal Tax Rate on Bonuses?
The marginal tax rate on a bonus is the rate that applies to your highest dollar of total income — 16%, 30%, 37%, or 45% depending on your income tax bracket for FY2025-26.
Your bonus is not taxed at a special "bonus tax rate." Instead, it is taxed at your marginal tax rate — the rate that applies to your top dollar of income. Because the bonus sits on top of your regular salary, every dollar of it falls into your highest tax bracket. This is why many Australians feel their bonus is "taxed more" — the effective rate on the bonus is higher than the effective rate on their total salary because it hits the top bracket.
| Taxable Income Bracket | Marginal Rate | Rate + Medicare Levy |
|---|---|---|
| $0 – $18,200 | 0% | 0% |
| $18,201 – $45,000 | 16% | 18% |
| $45,001 – $135,000 | 30% | 32% |
| $135,001 – $190,000 | 37% | 39% |
| $190,001+ | 45% | 47% |
FY2025-26 Australian resident tax brackets. See our Income Tax Calculator for a full breakdown.
A worker earning $90,000 in base salary sits in the 30% bracket. A $10,000 bonus pushes total income to $100,000 — still within the 30% bracket — so the entire bonus is taxed at 30% plus 2% Medicare levy, totalling $3,200 in tax. A worker on $130,000 receiving the same $10,000 bonus crosses from the 30% bracket into the 37% bracket. The first $5,000 is taxed at 32% and the remaining $5,000 at 39%, producing a blended withholding of approximately $3,550.
How Does PAYG Withholding Apply to Bonuses?
Employers withhold tax on bonuses using ATO Schedule 5, which calculates the difference between tax on annual earnings with and without the bonus.
The ATO provides Schedule 5 to employers for calculating tax on supplementary payments like bonuses, commissions, and back pay. The "PAYG withholding" method works as follows:
- Calculate tax on annual earnings including the bonus
- Calculate tax on annual earnings excluding the bonus
- The difference is the amount withheld from the bonus
This approach ensures the withholding closely matches your actual tax liability, minimising the chance of a large bill or refund at tax time.
Why Schedule 5 Exists
Without Schedule 5, employers would need to annualise the pay period containing the bonus. A $5,000 fortnightly wage plus a $10,000 bonus in a single pay period would annualise to $390,000, triggering the 45% withholding rate on the entire payment. Schedule 5 prevents this over-withholding by isolating the bonus component and taxing it at the correct marginal rate based on your actual annual income.
When Schedule 5 Does Not Apply
Schedule 5 does not apply to "Employment Termination Payments" (ETPs) such as golden handshakes, genuine redundancy amounts above the tax-free limit, or unused annual leave paid on termination. These payments have separate withholding rules under Schedule 11. For more on termination payments, see our Redundancy Pay Guide.
Worked Example: Tax on a $10,000 Bonus
A worker earning $85,000 base salary who receives a $10,000 bonus pays approximately $3,200 in tax on the bonus, netting $6,800.
Here is the step-by-step Schedule 5 calculation:
- Step 1 — Tax on salary only ($85,000): $0 on the first $18,200 + $4,288 on $18,201–$45,000 (16%) + $12,000 on $45,001–$85,000 (30%) = $16,288 income tax + $1,700 Medicare levy = $17,988 total
- Step 2 — Tax on salary plus bonus ($95,000): $0 on the first $18,200 + $4,288 on $18,201–$45,000 (16%) + $15,000 on $45,001–$95,000 (30%) = $19,288 income tax + $1,900 Medicare levy = $21,188 total
- Step 3 — Difference: $21,188 − $17,988 = $3,200 withheld from the $10,000 bonus
The effective tax rate on this bonus is 32% (30% marginal rate plus 2% Medicare levy). The worker takes home $6,800 of the $10,000 bonus. Use our Take-Home Pay Calculator to model your complete after-tax income including bonuses.
Bonus Tax Table by Income Level
The table below shows tax withheld on a $10,000 bonus at 5 common salary levels, covering every FY2025-26 income tax bracket from 16% through 45%.
| Base Salary | Tax Bracket | Tax on $10K Bonus | Net Bonus |
|---|---|---|---|
| $40,000 | 16% + 2% | ~$2,360 | ~$7,640 |
| $80,000 | 30% + 2% | ~$3,200 | ~$6,800 |
| $120,000 | 30% + 2% | ~$3,200 | ~$6,800 |
| $150,000 | 37% + 2% | ~$3,900 | ~$6,100 |
| $200,000 | 45% + 2% | ~$4,700 | ~$5,300 |
Approximate values for FY2025-26. Use our bonus tax calculator for exact figures.
The jump between the 30% and 37% brackets occurs at $135,000. A worker on $130,000 who receives a $10,000 bonus has $5,000 taxed at 32% and $5,000 taxed at 39%, producing a blended rate of approximately 35.5% across the bonus. The largest single jump happens at $190,000, where the marginal rate rises from 37% to 45% — an 8 percentage point increase that costs an extra $800 per $10,000 of bonus income compared to the bracket below.
Do You Get Tax Back on Bonuses?
You receive a tax refund on your bonus only if your employer withheld more tax than your actual liability — the Schedule 5 method minimises this gap, so most refunds on bonus withholding are small or zero.
Over-withholding happens in 3 common scenarios:
- Bonus paid early in the financial year — the employer projects a full year of income, but you change jobs or reduce hours mid-year, lowering your actual taxable income
- Employer uses flat-rate annualisation instead of Schedule 5 — some payroll systems annualise the pay period containing the bonus, producing a higher withholding rate
- Significant tax deductions — work-related expenses, salary sacrifice contributions, or the "Low Income Tax Offset" reduce your assessable income below the projected amount
When you lodge your tax return, the ATO calculates your actual tax liability on total income (salary plus bonus) and compares it to total PAYG withholding throughout the year. The difference is your refund or balance owing. See our Tax Refund Guide for a full explanation of how refunds are calculated.
How to Reduce Tax on Your Bonus
The most effective way to reduce tax on a bonus is to salary sacrifice it into superannuation, converting a marginal rate of up to 47% into a flat 15% contributions tax.
Strategy 1: Salary Sacrifice Into Super
Directing part or all of a bonus into superannuation as a concessional (before-tax) contribution reduces taxable income. The contribution is taxed at only 15% inside the super fund, compared to marginal rates of 30%–47% outside super. A worker on $120,000 who sacrifices a $10,000 bonus saves approximately $1,700 in tax ($3,200 at the marginal rate minus $1,500 in super contributions tax).
The concessional contribution cap for FY2025-26 is $30,000 per year, including employer SG contributions of 12%. A worker earning $120,000 receives $14,400 in SG, leaving $15,600 of cap space for salary sacrifice. Workers with unused cap space from previous years (where their super balance was below $500,000 on 30 June) can carry forward up to 5 years of unused amounts. See our Salary Sacrifice Guide for a detailed walkthrough.
Strategy 2: Time the Bonus Payment
A bonus is assessable income in the financial year it is paid, not the year it is earned. If you expect lower income next financial year — due to parental leave, career break, or part-time work — ask your employer to defer the bonus payment into the new financial year. A $10,000 bonus taxed at the 30% bracket costs $3,200 in tax. The same bonus taxed at the 16% bracket (if income drops below $45,000) costs only $1,800 — a saving of $1,400.
Strategy 3: Maximise Deductions
Work-related deductions reduce your taxable income, potentially pulling bonus income down into a lower tax bracket. Common deductions that offset bonus taxation include self-education expenses, home office costs, professional memberships, and income protection insurance premiums. Every $1,000 in deductions at the 37% marginal rate reduces tax by $370.
Is Superannuation Paid on Bonuses?
Bonuses for work performed are generally classified as "Ordinary Time Earnings" (OTE) and attract the 12% Superannuation Guarantee for FY2025-26.
Your employer pays the SG rate of 12% on top of your bonus, depositing it into your super fund. A $10,000 performance bonus generates $1,200 in additional super contributions. However, some bonus types are excluded from OTE:
- Retention bonuses — excluded from OTE if the payment is conditional on staying for a set period rather than performing work
- Sign-on bonuses — generally excluded because they relate to entering employment, not performing work
- Referral bonuses — excluded when paid for recommending a candidate rather than productive work
- Performance bonuses linked to work — classified as OTE and attract the full 12% SG
The maximum super contribution base for FY2025-26 is $65,070 per quarter. Employers are not required to pay SG on earnings above this cap. For more detail on contribution limits and rates, see our Superannuation Guide.
How Are Commissions Taxed Compared to Bonuses?
Commissions are taxed identically to bonuses — the ATO applies the same Schedule 5 withholding method and marginal tax rate treatment to both payment types.
Whether your payment is called a "performance bonus," "sales commission," "incentive payment," or "profit share," the withholding method under Schedule 5 is the same. All supplementary payments above ordinary wages fall under the same PAYG withholding rules. The only distinction is reporting: commissions earned as a sole trader or independent contractor are reported as business income rather than employment income and are not subject to PAYG withholding.
What Is Lump Sum B (Back Pay)?
"Lump Sum B" is a back payment relating to previous financial years, and the ATO spreads it across the relevant years to prevent an unfair tax bracket increase in the current year.
Back payments relating to previous financial years are handled under Lump Sum B on your payment summary. The tax on these is calculated differently — the ATO spreads the payment across the relevant years to avoid unfairly pushing you into a higher bracket for the current year. Your employer reports the amount and the number of years it relates to. The ATO then calculates the correct tax at lodgment time.
Common examples of Lump Sum B payments include retrospective pay rises under enterprise agreements, back-paid award rate increases, and settlement payments for underpayment claims. A $6,000 back payment covering 3 financial years is split as $2,000 per year, and the ATO calculates the marginal rate for each year independently.
What Changed in FY2025-26?
The FY2025-26 tax cuts restructured the income tax brackets, reducing the 19% rate to 16% and lowering the 32.5% rate to 30%, which reduces bonus tax for most Australian workers.
Key changes affecting bonus taxation in the 2025-26 financial year:
| Change | FY2023-24 (Old) | FY2025-26 (Current) | Impact on Bonus Tax |
|---|---|---|---|
| Second bracket rate | 19% | 16% | Saves $300 per $10K bonus for earners $18K–$45K |
| Third bracket rate | 32.5% | 30% | Saves $250 per $10K bonus for earners $45K–$135K |
| Third bracket ceiling | $120,000 | $135,000 | Workers $120K–$135K drop from 37% to 30% |
| SG rate | 11% | 12% | Extra $100 super per $10K bonus |
| Concessional super cap | $27,500 | $30,000 | More room to salary sacrifice bonuses |
The combined effect is meaningful. A worker on $100,000 receiving a $10,000 bonus now pays $3,200 in bonus tax (including Medicare levy) compared to $3,450 under the old rates — an annual saving of $250. Workers earning between $120,000 and $135,000 benefit the most: their bonus marginal rate dropped from 39% (including Medicare) to 32%, saving $700 per $10,000 bonus. Use our Income Tax Calculator to compare your take-home pay across financial years.
Frequently Asked Questions
How this guide works▼
Tax treatment information is sourced from ATO Schedule 5 documentation and current individual income tax rates for FY2025-26. Worked examples use approximate figures based on marginal rate calculations.
Sources & References
- 1Schedule 5 – Tax table for back payments— Australian Taxation Office
- 2Individual income tax rates— Australian Taxation Office
Last verified: 14 March 2026. Our content is based on the latest information from official Australian government sources.
James Harrington
Verified AuthorSenior Tax & Payroll Analyst
CPA, Registered Tax Agent (25787011)
James is a CPA-qualified tax professional with over 14 years of experience in Australian taxation and payroll systems. He spent six years at the Australian Taxation Office working on PAYG withholding and individual tax return processing before moving into financial publishing. He now leads the tax content at Pay Calculator Australia, translating complex ATO legislation into clear, actionable guidance.
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