Build the annual and payroll views

A bonus is not taxed under a separate personal tax rate

A cash employment bonus is generally assessable salary or wages. On the final individual return it combines with other taxable income and deductions, and the normal resident marginal scale applies. The part of the bonus that falls in one bracket is taxed at that bracket’s rate; a later slice can enter the next bracket. It is incorrect to multiply the whole year’s salary and bonus by the top marginal rate reached.

The amount removed from the payslip is PAYG withholding. It is a credit collected toward the eventual assessment, not a final tax category. Payroll needs a method that avoids treating a one-off payment as though the employee earns that large pay every pay period. ATO Schedule 5 provides Method A and Method B for back payments, commissions, bonuses and similar payments.

This page therefore shows two views. The annual comparison adds the bonus to estimated taxable income and measures the change in income tax, LITO and the selected Medicare scenario. The Method A box illustrates the schedule’s apportionment structure but does not reproduce every tax-table rounding, tax-file-number declaration, study-loan component or payroll configuration.

Resident rates used for the annual comparison

The 2026–27 scale applies from 1 July 2026 and reduces the first taxable band to 15%. The page also estimates LITO: up to $700 through $37,500, a 5 cents-per-dollar taper to $45,000, then a 1.5 cents-per-dollar taper from $325 to zero at $66,667. A bonus can increase incremental tax partly by reducing LITO.

The optional 2% Medicare amount is only a reserve scenario. It does not implement low-income phase-in, family thresholds, seniors and pensioners rules or exemptions. Medicare levy surcharge and study-loan repayments use different income concepts and thresholds; enter only the extra amount attributed to the bonus after calculating it under the correct year’s rules.

How Schedule 5 Method A handles an additional payment

Method A starts with gross earnings excluding additional payments for the current pay period and finds withholding from the relevant ordinary tax table. It then divides total additional payments by the number of pay periods in the financial year—52 weekly, 26 fortnightly or 12 monthly—ignoring cents. For a commission or bonus relating to a defined period shorter than 12 months, the payer may use the number of pay periods in that defined period.

The apportioned amount is added to normal current-period earnings and the relevant tax table is applied again. The difference between the two period withholding amounts is multiplied by the number of periods used. That result is compared with 47% of the additional payment, and the lower amount becomes withholding on the additional payment. Ordinary current-pay withholding is then added.

The illustration on this page annualises the normal salary and apportioned bonus through the same resident tax/LITO/selected Medicare functions, then scales the difference back to the related periods. Official payroll tables round and incorporate employee declarations, so the displayed amount is a structural cross-check only. Employers must use the current official schedule or compliant payroll software.

Method B is more complex but the ATO says it more closely approximates actual tax payable. A payroll team may use Method B when the necessary earnings and prior additional-payment information is available. This page does not imitate Method B.

Worked annual example at a $90,000 salary

Assume a resident employee has $90,000 normal taxable salary, no other income or deductions and receives a $10,000 cash bonus during 2025–26. Basic income tax before the bonus is $4,288 plus 30% of $45,000, or $17,788. At $100,000 taxable income it becomes $20,788. The income-tax increase is $3,000.

A simple full-rate Medicare scenario rises from $1,800 to $2,000, adding $200. With no extra study-loan or MLS amount entered, estimated incremental annual liability is $3,200. The effective incremental rate is 32%, and the bonus after that annual estimate is $6,800.

If payroll withheld $3,200, the bonus-only variance is zero in this simplified example. That does not prove the whole tax return balances: other income, deductions, private health circumstances, study-loan repayment income and credits still matter. It also does not prove an employer should simply withhold 32%; Schedule 5 and the employee’s payroll declarations control the payslip calculation.

Use return inputs and payroll inputs in the right places

Normal taxable salary should exclude the bonus but include the expected taxable salary and wages for the year. Other assessable income can include interest, rent or another job where relevant. Deductions should be supported annual amounts, not a target chosen to lower the estimate.

Enter the gross bonus before withholding. Salary-sacrificed benefits, reportable fringe benefits, superannuation and non-cash awards can require different treatment and should not be forced into a cash-bonus field. Confirm whether a payment is an employment termination payment, unused leave payment, lump sum in arrears or genuine bonus because different schedules and return labels can apply.

The related-period field belongs only to the Method A illustration. It does not spread assessable income across multiple tax years. A bonus is generally reported in the income year it is derived or received under the applicable rule, while a genuine back payment may have lump-sum reporting consequences.

Check the payment date and income year

A performance period and a payment date can fall in different financial years. Do not select an income year merely because that is when the work occurred. Match the income statement and the employer’s reporting treatment, then use the resident rates and thresholds for the return in which the amount is included. If payroll corrects or reissues the income statement, preserve both versions and update the estimate rather than manually moving the bonus between years.

Also compare year-to-date gross earnings before and after the bonus. A duplicated or omitted payment, an incorrectly classified reimbursement, or a sacrificed amount shown as cash salary can matter more than a small modelling difference. Raise discrepancies with payroll promptly and keep written confirmation of any correction.

Checks for employees and payroll teams

Employees should compare the income statement, payslip and bank deposit. Confirm the gross bonus, PAYG withholding, super treatment and year-to-date totals. Keep the bonus letter or plan rules. If the payment materially changes HELP repayment, Medicare levy surcharge or private health insurance outcomes, update the annual forecast rather than considering the payslip in isolation.

Employers should identify the payment type, choose an accepted Schedule 5 method, use the employee’s current declaration and tax tables, apply the 47% cap where Schedule 5 requires it, and keep the worksheet. Working holiday makers use Schedule 15 for payments including bonuses. A payment relating to one normal pay period is treated with that period’s earnings rather than necessarily using the multi-period bonus approach.

If an employee expects withholding to be persistently too high or low, the ATO provides withholding variation processes. Do not manually change payroll merely to match this calculator.