Wondering why your bonus feels smaller than expected? You’re not alone

Are you working hard, hitting your goals, and finally rewarded with a bonus, only to be surprised by how much actually reaches your bank account?

Whether you’re a new employee receiving a signing bonus, a seasoned professional rewarded for performance, or someone who received a special year-end payout, it’s important to understand what’s really going on behind the scenes of your bonus.

In Canada, bonuses are taxed differently than regular salary, and not understanding how can lead to confusion, disappointment, or missed opportunities to claim money back.

How bonuses are taxed in Canada

Bonuses may feel like a gift, but the CRA doesn’t treat them that way. In fact, they’re considered part of your employment income and are subject to various deductions—just like your regular paycheque.

But here’s the twist: employers often apply flat withholding rates to bonuses, which can be higher than your usual tax rate. This means your bonus might be taxed at 20%, 30%, or even more, before you even see it.

What gets deducted from your bonus

When you receive a bonus in Canada, it’s typically reduced by several automatic deductions.

Federal and provincial taxes: Depending on your province and income level, a significant portion of your bonus may go to taxes right away.

CPP (Canada Pension Plan): If you haven’t hit your annual maximum contribution yet, CPP will be deducted from your bonus as well.

EI (Employment Insurance): Just like CPP, if you’re still under the annual cap, EI contributions will be taken from your bonus too.

The result? Your take-home bonus might be much less than you expected. And here’s the kicker: this flat withholding often doesn’t match your actual marginal tax rate, meaning you could be overpaying taxes upfront.

Can you get some of it back?

Yes, you might. If your employer deducted more tax than necessary, you may be entitled to a refund when you file your income tax return.

That’s why it’s important to keep track of all bonuses received during the year, understand how much was withheld, and file your taxes accurately to ensure any overpaid tax is returned to you.

Make the most of your bonus

Understanding how bonuses are taxed in Canada can help you better plan your finances, avoid surprises, and optimize your earnings.

Bonuses are a fantastic reward for your hard work—but don’t let unexpected deductions catch you off guard.

Curious about how to calculate your after-tax bonus or how much refund you might expect?

Check out our full blog post below where we break down real examples, provide a bonus tax calculator, and share tips to make the most of your earnings.