Key facts at a glance
Withholding method
Bonus method
CRA T4127, combined-income calculation
Withholding on $10K bonus
31.6%
At $80,000 base salary, 2026 rates
True final rate
Marginal rate
Same as extra salary would face
Short answer: your bonus isn't taxed at a special, higher "bonus rate", it's withheld at your marginal rate under the CRA's bonus method, all at once instead of spread across the year the way your salary is. On an $80,000 Ontario salary, a $10,000 bonus has $3,165 (31.6%) withheld, leaving $6,835 in your account. On $130,000 base with a $20,000 bonus, withholding climbs to $8,682 (43.4%).
That withholding percentage looks alarming next to a normal paycheque, but it's not extra tax, it's the same marginal rate that would apply if those dollars had simply been added to your last few paycheques of the year instead of arriving as a lump sum. Understanding the mechanics below is the difference between panicking at your pay stub and knowing exactly what to expect at tax time.
Enter your own base salary and bonus to see the exact withholding.
Open the Bonus Tax CalculatorHow the CRA bonus method actually works
The bonus method is set out in the CRA's T4127 Payroll Deductions Formulas, the same guide employers use for every payroll calculation in Canada. When a bonus arrives, your employer's payroll system does two separate annual tax calculations: one on your regular annual salary alone, and one on your regular salary plus the bonus combined, both using the 2026 federal and Ontario brackets, the Ontario Surtax, and the Ontario Health Premium. The gap between those two figures is what's withheld from the bonus payment itself.
Because that gap reflects tax on your last dollars of income for the year, it's calculated at your marginal rate, whatever bracket that combined income lands you in, not a blended average rate the way your regular salary withholding is spread out. If your salary alone already has you near the top of the 20.5% federal bracket or past the Ontario Surtax threshold, a bonus on top of it gets taxed at those higher marginal rates from the very first dollar of the bonus, which is exactly why bonus withholding percentages often look steeper than what comes off a regular paycheque.
CPP, CPP2, and EI apply to bonuses too, the same rates and caps as regular salary. If a bonus lands late in the year after you've already hit the $74,600 CPP ceiling or the $68,900 EI ceiling from your regular pay, those specific deductions simply won't apply to the bonus.
What the withholding looks like at three salary levels
Each row calculates federal tax, Ontario tax, the Ontario Surtax, the Ontario Health Premium, and CPP/CPP2/EI on base salary alone, then again on base salary plus bonus combined, using 2026 rates. The withheld figure is the difference.
| Base salary | Bonus | Withheld | Withholding % | Net bonus |
|---|---|---|---|---|
| $80,000 | $10,000 | $3,165 | 31.6% | $6,835 |
| $100,000 | $15,000 | $5,074 | 33.8% | $9,926 |
| $130,000 | $20,000 | $8,682 | 43.4% | $11,318 |
Figures use 2026 CRA federal brackets, 2026 Ontario Ministry of Finance brackets, and current Service Canada CPP/CPP2/EI rates. Run your own exact numbers through the Ontario Bonus Tax Calculator.
The withholding rate isn't your final tax rate
Nothing about a bonus creates a permanently higher tax obligation on that money. Come tax season, your T1 return calculates tax on your total annual income, salary plus bonus together, at the exact same brackets everyone else's income goes through. If the bonus method withheld more than your true year-end liability required, given your RRSP contributions, credits, or other deductions, the excess comes back to you as part of your refund. If it withheld too little, you'll owe the difference. Either way, the number on your Notice of Assessment reflects your real marginal rate on total income, not the standalone bonus withholding percentage.
See your own bonus withholding, line by line
Enter your Ontario base salary and bonus amount and see exactly how much the CRA bonus method withholds, and what lands in your account.
Open the Ontario Bonus Tax CalculatorMonthly briefing
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Frequently asked questions
Why does my bonus feel like it's taxed at a higher rate than my salary?
It isn't taxed at a special higher rate, but it can look that way. The CRA bonus method withholds tax on a bonus at your marginal rate, the rate on your last dollars of income for the year, all in a single lump sum. Your regular salary withholding, by contrast, is spread evenly across 24 or 26 pay periods using a blended annualized calculation. Seeing 30 to 40 percent disappear from one payment feels much more dramatic than the same rate applied gradually across every paycheque, even though the underlying math is consistent.
What exactly is the CRA bonus method?
It's the calculation the CRA prescribes in T4127, Payroll Deductions Formulas, for irregular payments like bonuses, retroactive raises, and other lump sums. Payroll estimates your annual salary, calculates federal and Ontario tax on that salary alone, then recalculates tax on salary plus bonus combined. The difference between those two annual tax figures is what gets withheld from the bonus payment itself, on top of normal CPP, CPP2, and EI deductions.
Is the withheld amount the same as what I'll actually owe?
Close, but not always exact. The bonus method is designed to approximate your true marginal rate reasonably well, but payroll doesn't know about RRSP contributions, tax credits, or other deductions you might claim later. Your real tax owing is calculated when you file your T1 return, using your total annual income including the bonus. If withholding ran ahead of what you actually owed, you get the difference back as part of your refund; if it ran behind, you'll owe the balance, both shown on your Notice of Assessment.
Do CPP, CPP2, and EI come off a bonus too?
Yes. Bonuses are pensionable and insurable earnings, so CPP (5.95%), CPP2 (4.00% on the slice between the $74,600 YMPE and $85,000 YAMPE), and EI (1.63%) are all withheld from a bonus the same way they're withheld from regular salary, up to the same annual maximums. If a bonus lands after you've already hit those caps from your regular pay earlier in the year, those specific deductions simply won't apply to it.
Can a bonus push me into the Ontario Surtax?
It can, because the bonus method calculates tax on your combined income. If your base salary alone keeps your Ontario tax payable under the $5,818 first surtax threshold, but a large bonus pushes your combined-income Ontario tax above it, the surtax applies to that portion. This is a genuine increase in your total tax bill for the year, not a bonus-specific penalty, since the same dollars would trigger the same surtax if they'd simply arrived as extra salary.
What's the one legitimate way to reduce the tax hit on a bonus?
Directing some or all of the bonus into an RRSP contribution, if you have the room. That lowers the taxable income the bonus method calculates withholding against, which reduces both the immediate withholding and your total tax for the year. It doesn't change your marginal rate, but it shelters that income from tax until you eventually withdraw it, typically in retirement at a lower rate. See our RRSP Contribution & Tax Refund Calculator to model what that looks like against your own numbers.
Does my employer have any discretion over how much to withhold from a bonus?
Not much. Larger employers with payroll software almost always apply the CRA bonus method precisely as T4127 sets it out. Some smaller employers, particularly ones using manual payroll processes, take a shortcut and apply a flat percentage to the bonus instead, which can over- or under-withhold compared to the true bonus method figure. Either way, any mismatch between what was withheld and what you actually owe gets reconciled when you file.