Getting a bonus is exciting, but it is often accompanied by a shock when you see the tax deductions on your payslip. Bonuses are subject to Income Tax and National Insurance, and they are taxed at your highest marginal rate.
How is a Bonus Taxed?
HMRC does not distinguish between a regular salary and a bonus; it is all considered earned income. However, because a bonus is paid on top of your normal wage, it gets pushed into your highest tax band:
- Basic Rate Earners: Pay 20% Income Tax + 8% National Insurance on their bonus.
- Higher Rate Earners: Pay 40% Income Tax + 2% National Insurance on their bonus.
- Additional Rate Earners: Pay 45% Income Tax + 2% National Insurance on their bonus.
To calculate how much of your next bonus will actually make it to your bank account, use our Bonus Tax Calculator.
Frequently Asked Questions (FAQ)
Q: Why is my bonus taxed so heavily?
A: Because the bonus is stacked on top of your normal salary, it is taxed entirely at your highest marginal tax rate, rather than benefitting from tax-free personal allowances.
Q: Can I put my bonus into my pension to save tax?
A: Yes, this is called “Bonus Sacrifice”. It allows you to direct all or part of your bonus into your pension pre-tax, avoiding income tax and NI deductions completely.
Q: Does a bonus affect my student loan repayments?
A: Yes. Student loan repayments are calculated on a weekly or monthly basis. If a bonus pushes you over the repayment threshold for that pay period, 9% of the excess will be deducted.
Q: Will my bonus push me into the £100k tax trap?
A: Yes, if your total annual earnings (salary + bonus) exceed £100,000, you will begin to lose your Personal Allowance, resulting in a 60% marginal tax rate.
Q: Is National Insurance payable on bonuses?
A: Yes, standard employee National Insurance applies to bonuses at either 8% (basic rate) or 2% (higher rate).