Quick answer
In Canada in 2026, CRA's bonus method taxes a bonus at your marginal rate, because the employer annualizes your regular pay, works out the tax with and without the bonus and withholds the difference. On a $10,000 bonus with a $70,000 salary in Ontario, $6,516.36 (65.2%) is kept after $2,993.94 of income tax and $489.70 of CPP; EI takes nothing more because that salary is already past the $68,900 EI maximum.
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 — 5.95% up to the $74,600 YMPE, then a lower 4% (CPP2) on the slice from there up to $85,000 — 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 any bonuses 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
Payroll tax on the bonus (Northwest Territories and Nunavut only) = 2% of the bonus, whatever is routed to an RRSP
Kept from the bonus, after tax = bonus − true tax − CPP/EI − payroll tax (where it applies) − any amount routed to an RRSP
CRA's own page on bonuses, retroactive pay increases and irregular amounts (last modified 2026-07-08) confirms that income tax on a bonus is calculated by the bonus-or-irregular-payments method, and that CPP (by its own bonus method) and EI are deducted from it too.
When the employer withholds a flat 15%: total pay of $5,000 or less for the year
The bonus method has one shortcut, and the $5,000 in it is not a limit on the bonus. It is a limit on the employee's total remuneration for the year, bonus included. CRA's employers' guide, T4001, says that after you subtract the amounts that come off pay before tax (registered pension plan contributions, union dues, RRSP contributions deducted at source and the prescribed-zone deduction, among others), if the total remuneration for the year including the bonus is $5,000 or less, you deduct 15% tax (10% in Quebec) from the bonus. CRA's Calculate income tax deductions page sets out the same test as steps: add the year's pay before the bonus to the bonus, subtract those deductions, and compare the result with $5,000. Its list of deductions is longer than T4001's, because it also takes off the employee's additional CPP contributions; this calculator follows T4001's list. T4001 and T4127 both put $5,000 itself in the flat-rate case; the steps page splits the cases into less than and more than $5,000 and does not say where exactly $5,000 falls, so this calculator follows T4001 and T4127.
So with a $70,000 salary the flat rate never applies, whatever the bonus: the salary alone is already well past $5,000 before the bonus is added, and the full method above is what the employer uses. The flat rate reaches only an employee whose pay for the year, bonus included, is $5,000 or less. (The regulation behind it, section 103(1) of the Income Tax Regulations, speaks of the employee's remuneration from the employer, as that employer can reasonably expect it, so the test is made employer by employer; this calculator has one employer and tests the whole of the pay you enter.) If that pay is the employee's only income for the year, the tax on it is nil, because income that low is below the basic personal amounts, so the flat 15% is over-withheld and comes back when the return is filed. For example, in Ontario, $3,000 of regular pay for the year and a $1,500 bonus make $4,500, so the employer withholds a flat 15% of the bonus, $225.00. The true tax on that bonus is $0.00, so all $225.00 comes back at filing. CPP and EI still come off the bonus; the flat rate covers income tax only.
In Quebec, the 10% CRA quotes is the federal portion only. Revenu Québec sets Quebec's own withholding: its Guide for Employers, TP-1015.G-V (2026, section 9.5), has the employer withhold Quebec income tax at 7% of the bonus when the employee's estimated pay for the year, bonus included, is $18,952 or less, and use the TP-1015.F-V formulas above that.
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), death benefits, and lump-sum payments out of an RRSP, a registered pension plan or a deferred profit sharing plan. A qualifying retroactive lump-sum payment is not taxed this way: CRA has its income tax withheld by the bonus method, and the special calculation it qualifies for is done when the return is filed. CRA's page on retiring allowances (last modified 2026-05-31) sets the rates out as 10% when the year's total of such payments is $5,000 or less, 20% from $5,001 to $15,000, and 30% at $15,001 or more, the band being chosen by the total paid or expected to be paid in the calendar year, and CRA's lump-sum payments page (updated on 2026-10-06) gives the same table for the other lump sums. CRA's employers' guide, T4001, adds that these rates blend federal and provincial tax outside Quebec and that Quebec's rates, 5%/10%/15%, are federal only; for Quebec's own rates it points to Revenu Québec's Guide TP-1015.G-V, whose section 9.16 has the employer withhold a further 14% on a single payment of $5,000 or less and 19% above that. The table applies a single rate to the entire payment, whichever band the year's total falls in — 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 (CRA's lump-sum page says plainly that a bonus is not a lump-sum payment), but because it looks so similar to the $5,000 total-pay test above, this calculator shows what the table would produce for this bonus, counted as the year's only lump sum, 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 smaller than a flat 5.95% of $10,000 — $595.00 — would suggest, because this bonus pushes combined income past the $74,600 CPP2 threshold: only the first $4,600 of it (up to $74,600) is charged the 5.95% base-and-first-enhanced rate ($273.70), while the remaining $5,400 above that is charged only the lower 4% CPP2 rate ($216.00), for a blended $489.70.
- 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 total pay for the year is over $5,000 ($70,000 of salary plus the $10,000 bonus is $80,000), the flat 15% does not apply and the full method does, 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 — bonuses already paid this year count towards the year's total pay in the $5,000 test, and once that total is over $5,000 CRA works a later bonus out differently from a first or only one, whereas this page treats the bonus you enter as your only one. 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 tax bracket, 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. Crossing the $74,600 CPP2 threshold doesn't add to that bite — the CPP rate above it, 4% up to the $85,000 ceiling, is actually lower than the 5.95% rate that applies below it.
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.
Is a bonus of $5,000 or less taxed at a flat 15%?
Not because of the size of the bonus. CRA's flat 15% (10% in Quebec, where it is the federal portion only and Revenu Québec adds its own 7% when pay for the year is $18,952 or less) depends on the employee's total pay for the year, bonus included: if that total, after subtracting amounts such as registered pension plan and RRSP contributions and union dues, is $5,000 or less, the employer deducts 15% from the bonus. With a $70,000 salary the test is never met, whatever the bonus, so the full bonus method applies. Where the flat rate does apply, and that pay is the employee's only income for the year, the tax on it is nil because the income is below the basic personal amounts, so the 15% is over-withheld and comes back when the return is filed.
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, death benefits and lump-sum payments out of an RRSP or pension plan — not ordinary discretionary bonuses or retroactive pay. The table applies a single rate to the whole payment, chosen by the year's total of such payments (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, apart from one narrow case. An RRSP contribution made through payroll comes off the bonus before tax is calculated, so it lowers the taxable amount the bonus method is applied to. It also lowers the total that is tested against $5,000, because CRA subtracts RRSP contributions deducted at source from the year's total pay first. Where the flat 15% applies, it is taken on what is left of the bonus after the contribution. The narrow case is a contribution that brings total pay down to $5,000 or less (or, for Quebec income tax, to $18,952 or less): the flat rate then replaces the full method, so the amount withheld can go up rather than down. 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 applies the full bonus method to all of the tax, which is whenever your total pay for the year, bonus included, is over $5,000 (over $18,952 in Quebec), the two numbers should match closely, assuming this is your only income and nothing else about your year changes. They differ under the flat rules: when total pay for the year is $5,000 or less the flat 15% is withheld instead (10% in Quebec, for federal tax), and in Quebec Revenu Québec's flat 7% applies to pay of $18,952 or less. If that is the employee's only income for the year, the tax on it is nil, so the flat amount is over-withheld. 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.