Why was half my bonus gone?
Nothing was lost — but the withholding on a bonus is calculated in a way that makes it look much bigger than the tax on your regular pay, and the reason is entirely mechanical. Your salary gets taxed gradually as it's earned: the first slice at the lowest bracket rate, the next slice at the next rate, and so on, which is why your average tax rate on a full salary usually lands somewhere in the high teens or twenties. A bonus doesn't get that same gentle ramp. CRA's rule for bonuses and other irregular payments treats it as extra income stacked on top of everything you've already earned that year, so the whole thing is taxed at whatever rate applies to your next dollar of income — your marginal rate — which is very often 10 to 20 percentage points higher than your average rate. Add CPP (and possibly a newly-triggered CPP2 contribution once you cross $74,600 of combined income) and the total taken off a bonus can genuinely approach or exceed 40% for a solidly middle-income earner, even though that same person's overall tax bill for the year works out to a much gentler share of their total pay.
CRA's "bonus method" — the actual calculation
CRA sets out the method employers must use for bonuses, retroactive pay increases and similar irregular payments in its payroll-formulas guide, T4127 (122nd edition, effective 2026-01-01, revision T4127(E) Rev. 26 (26/05)). In Chapter 4's tax formulas for "bonuses, retroactive pay increases, and other non-periodic payments," the calculation runs in four steps: annualize the employee's regular pay for the year (their current pay-period earnings, multiplied by the number of pay periods, plus anything already paid this year); work out the full annual federal-plus-provincial tax on that figure; add the current bonus and work out the annual tax again; and withhold the difference between the two results. This calculator runs the same logic on the annual figures you enter — your regular salary as the "before" case, salary plus bonus as the "after" case — using the identical 2026 tax engine as our Take-Home Pay Calculator, so the true tax figure below reflects the real 2026 brackets, credits, Ontario's surtax and Health Premium, the BC and Ontario low-income reductions, and Quebec's own TP-1015.F-V formula, not a flat percentage.
CPP/EI on the bonus = the same before/after difference, applied to CPP (or QPP), EI and QPIP
Kept from the bonus, after tax = bonus − true tax − CPP/EI − any amount routed to an RRSP
CRA's own page on bonuses, retroactive pay increases and irregular amounts (last modified 2026-07-08) confirms employers must use this bonus-or-irregular-payments method rather than the regular payroll tax tables whenever the payment is a bonus, and that CPP and EI are still deducted from it under their normal rules — the bonus method changes only how income tax is worked out, not the pension and insurance premiums.
The $5,000-or-less shortcut
T4127 also gives employers an explicit shortcut: if a bonus is $5,000 or less, they can skip the full annualized calculation entirely and simply withhold a flat 15% (10% in Quebec). This isn't a rounding approximation this calculator invented — it's the rule as written. It exists because the full calculation is disproportionate work for a small, one-off payment, but the trade-off is that a flat 15% has no relationship to your actual marginal rate. Anyone earning enough to sit in a federal-plus-provincial bracket above 15% — which covers most full-time employment income in Canada — will be under-withheld on a small bonus taxed this way, meaning some of the true tax comes due later, at filing. In Quebec, the "10%" T4127 quotes is the federal portion only: Revenu Québec administers Quebec's own provincial withholding separately and has not published a simplified flat rate for small bonuses in a form this page could independently verify, so this calculator keeps using the full incremental TP-1015.F-V calculation for the Quebec provincial share even when the federal shortcut applies.
A different table entirely: lump-sum withholding rates
A lot of the confusion around bonus tax comes from a second, unrelated CRA table. Separate from the bonus method, the Income Tax Regulations set flat lump-sum withholding rates for a specific list of payments — retiring allowances (a form of severance), a refund of RRSP premiums, and retroactive pay an employee formally elects to have taxed this way under a qualifying retroactive lump-sum payment election. CRA's page on retiring allowances (last modified 2026-05-31) sets these out as 10% on the whole payment when the year's total is $5,000 or less, 20% from $5,001 to $15,000, and 30% at $15,001 or more (the band is chosen by the total of such payments paid or expected in the calendar year) — combined federal-plus-provincial outside Quebec, where the rates are instead 5%/10%/15% and federal-only (Revenu Québec applies its own separate provincial rate on top, per its Guide TP-1015.G-V). Note that the table applies a single rate to the entire payment based on which band it falls into — the same way RRSP withdrawal withholding works — not bracket-by-bracket like income tax itself. An ordinary discretionary bonus is not one of the payment types this table is meant for, but because it looks so similar to the bonus method's own $5,000 threshold, this calculator shows what it would produce alongside the true figure, purely so you can see how far apart the two can be.
Worked example — $10,000 bonus, $70,000 salary, Ontario
Regular salary $70,000, a $10,000 bonus, no RRSP contribution, Ontario.
- True tax on the bonus: federal-plus-provincial tax at $80,000 minus the same at $70,000 = $9,242.60 + $4,885.26 − ($7,278.19 + $3,855.73) ≈ $2,993.94 — a 29.9% marginal rate.
- CPP on the bonus: $4,446.45 minus $3,956.75 = $489.70. The jump is larger than a flat 5.95% of $10,000 because this bonus pushes combined income past the $74,600 CPP2 threshold, triggering the extra 4% CPP2 tier on part of it.
- EI on the bonus: $0.00 — the $70,000 salary alone already exceeds the $68,900 EI maximum insurable earnings, so the bonus adds nothing further.
- Because the bonus is over $5,000, the full method applies, so what's withheld should match the true tax almost exactly — no meaningful over- or under-withholding expected here, assuming this is the employee's only income for the year.
- Kept from the bonus, after tax: $10,000 − $2,993.94 − $489.70 ≈ $6,516.36 — about 65.2% of the bonus, even though this employee's overall average tax rate on their full $80,000 income is only about 17.7%.
- For contrast, the (inapplicable) lump-sum table would put this $10,000 payment in its 20% band — $2,000 — nearly $1,000 less than the true $2,993.94 tax bill. Using that table for an ordinary bonus this size would leave a real gap to make up at filing.
The same bonus in Quebec
Same $70,000 salary and $10,000 bonus, but Quebec instead of Ontario: true tax comes to about $3,483.60 (34.8%), QPP on the bonus is $505.80, and QPIP adds a further $43.00 — EI stays at $0 for the same reason as above, since Quebec's reduced EI rate is also already capped by the $70,000 salary alone. What's kept from the bonus, after tax, works out to about $5,967.60, or 59.7% — a few points lower than Ontario, mainly because Quebec's own tax brackets and QPIP premium add up to slightly more than Ontario tax and EI do at this income level.
Directing the bonus into an RRSP instead
An RRSP contribution made from a bonus through payroll comes off before tax is calculated, exactly like a regular payroll RRSP deduction. Using the Ontario example above: routing $5,000 of the $10,000 bonus into an RRSP drops the true tax on the bonus from $2,993.94 to about $1,511.44, a saving of $1,482.50 — almost exactly the 29.65% marginal rate that applies at this income, since the RRSP deduction doesn't cross any bracket or credit threshold here. The result: choosing the RRSP costs only $3,517.50 of immediate cash, not the full $5,000, because just over $1,480 of that money would have gone to tax either way. CPP and EI are unaffected either way — they're calculated on the bonus regardless of what you do with it afterward.
What this does not model
This calculator assumes one bonus, one employer, and no other income, deductions or credits beyond the basics already built into the underlying tax engine (union dues, medical expenses, donations, tuition and dependant amounts are not modelled, the same limitation the Take-Home Pay Calculator has). It also can't see whether you've already received other bonuses this year — CRA's $5,000 threshold is meant to apply to the cumulative total of bonuses and retroactive pay in the year, not any single payment in isolation, so if this isn't your first bonus of the year, the real threshold your employer applies may already be used up. And it assumes your regular pay stays the same for the rest of the year; a raise, a leave, or a job change part-way through the year changes the "annualized regular pay" side of the calculation in ways this tool doesn't track.
FAQ
Why was half my bonus gone?
Because CRA's withholding rule for bonuses stacks the whole bonus on top of your regular salary and taxes it at the rate that applies to your top slice of income — your marginal rate — not the lower, blended average rate your regular paycheque feels like. If a $10,000 bonus pushes you further into a higher bracket, or past the $74,600 CPP2 threshold, the combined bite from federal tax, provincial tax and CPP can easily run 30-45% before you even add EI, which is a much bigger share than the 15-20% average rate most people expect from their overall pay.
What is CRA's "bonus method" and why does it withhold so much?
CRA's T4127 payroll formulas set out a specific calculation for bonuses and other irregular payments: your employer annualizes your regular pay, works out the full year's federal-plus-provincial tax on that annualized amount, works it out again with the bonus added on top, and withholds the difference. It withholds "so much" because that difference is taxed entirely at your marginal rate — the bonus doesn't get its own fresh set of low brackets the way your first dollars of salary did.
What if my bonus is $5,000 or less?
CRA lets employers skip the full annualized calculation for a bonus of $5,000 or less and instead withhold a flat 15% (10% in Quebec, federal portion only) — a genuine shortcut in T4127, not an approximation this calculator invented. That flat rate has nothing to do with your actual marginal tax rate, so it can under-withhold noticeably if you're already in a bracket above 15%, or over-withhold slightly at very low incomes.
Are the 10%, 20% and 30% lump-sum rates the same thing?
No, and mixing them up is a common source of confusion. Those rates come from a separate CRA table for payments the Income Tax Regulations classify as lump-sum payments — retiring allowances, refunds of RRSP premiums, and retroactive pay an employee elects to have taxed this way — not ordinary discretionary bonuses. The table applies a single rate to the whole payment (10% on $5,000 or less, 20% from $5,001 to $15,000, 30% on $15,001 or more; Quebec's federal-only rates are 5%/10%/15%). This calculator shows what that table would produce alongside the true bonus-method figure so you can see the gap, but it is not the rule this calculator uses for an ordinary bonus.
Does directing my bonus into an RRSP reduce what's withheld?
Yes. An RRSP contribution made through payroll comes off the bonus before tax is calculated, so it lowers the taxable amount both the bonus method and the $5,000-or-less flat rate are applied to. It doesn't reduce CPP or EI, which are calculated on the bonus regardless. Because part of every dollar you'd have taken as cash would have gone to tax anyway, routing money into an RRSP instead almost always costs you less in take-home pay than the RRSP amount itself.
Is the amount withheld the same as what I actually owe?
Not necessarily. Withholding is a prepayment toward your year-end tax bill, not the bill itself. When your employer correctly applies the full bonus method to a bonus over $5,000, the two numbers should match closely, assuming this is your only income and nothing else about your year changes. Below $5,000, the flat-rate shortcut is often a rough approximation, in either direction. Either way, the gap is settled when you file — you get the difference back as a refund if you were over-withheld, or owe it if you were under-withheld.
This page is general information based on published 2026 CRA payroll formulas, not tax or financial advice. Actual withholding depends on your employer's payroll system and how it classifies the payment — talk to a licensed accountant about your specific situation.