A bonus is fully taxable employment income, so a good part of it goes to tax before it reaches your account, and the amount withheld may not match the tax you finally owe on it. This page covers the decisions that follow: what the bonus adds to your tax bill, using an RRSP to recover the withholding, timing, and where the rest of the money can go. It is part of the income tax hub.
How a bonus is taxed
A cash bonus is added to your employment income for the year and taxed at the marginal rate that applies above your salary: the rate on the top slice of your salary, or a higher one on any part of the bonus that crosses into the next bracket. Your employer withholds income tax (and CPP, or QPP in Quebec, and EI, until their yearly maximums) when it pays the bonus, using the CRA’s bonus method for federal tax and for provincial tax outside Quebec; the bonus tax calculator shows how that withholding is worked out and what a bonus adds to your tax in each province.
The bonus and the tax withheld from it are included in the employment income and tax deducted on your T4 for the year; the T4 slip guide explains each box. Any gap between what was withheld over the year and the tax you owe becomes a refund or a balance owing when you file.
Using an RRSP contribution to recover the withholding
If you have RRSP room, contributing some or all of the bonus gives you a deduction that lowers your taxable income, so the tax on that part of the bonus comes back as a refund.
Example: a $15,000 bonus on a $120,000 Ontario salary. At these incomes CPP and EI are already at their maximums, so the bonus adds only income tax: about $6,511 for the year at 2026 rates (tax on $135,000 minus tax on the salary alone). If roughly that much is withheld, about $8,489 reaches your account.
| Choice | RRSP deduction | Tax saved at filing (about) |
|---|---|---|
| No RRSP contribution | $0 | $0 |
| Contribute the after-tax bonus | $8,489 | $3,685 |
| Contribute the full bonus (topping up from other savings) | $15,000 | $6,511 |
Contributing the full bonus brings taxable income back to the salary alone, so the deduction cancels all of the tax the bonus added and the amount withheld comes back as a refund.
How much room you have and how it is calculated are covered in the RRSP contribution limit guide.
Timing the RRSP contribution
A contribution made by December 31 can be deducted for the current tax year. A contribution made in the first 60 days of the next year (to March 1, 2027 for the 2026 tax year) can also be deducted for the current year, or for a later one; the RRSP contribution deadline page has the dates for each tax year.
You can contribute by the deadline and choose when to claim the deduction: a deduction carried forward to a year with a higher marginal rate saves more tax. If a balance owing is likely, it is due by April 30 to avoid interest.
Where the rest of the bonus can go
People who don’t put the whole bonus into an RRSP commonly weigh these options:
| Option | What it offers |
|---|---|
| High-interest debt (credit cards, unsecured loans) | A guaranteed return equal to the interest rate you stop paying |
| FHSA (if you qualify as a first-time buyer) | A tax deduction plus tax-free growth for a first home |
| RRSP | A tax deduction worth your marginal rate |
| TFSA | Tax-free growth and withdrawals you can take at any time |
| Mortgage lump-sum prepayment | Interest saved at your mortgage rate, within the prepayment limit your mortgage allows |
| RESP | Government grants on contributions for a child’s education |
| Non-registered investing | Flexibility once registered accounts are full |
Paying down debt earns its interest rate with no risk, while investing earns an uncertain return; the higher the debt’s rate, the harder it is for an expected investment return to beat it.
Income-tested benefits
A large bonus raises your net income, which can reduce benefits that phase out with income, such as the OAS pension (recovery tax above $95,323 of net income for 2026), the Canada Child Benefit and the Canada Workers Benefit. An RRSP deduction lowers net income, so it can offset some of that reduction.
Related reading
Sources
The figures and rules on this page come from these sources, last checked against them between September 22, 2026 and September 29, 2026. How we check facts.
- Canada Revenue Agency: Payroll Deductions Formulas - 123rd Edition Effective July 1, 2026
- Canada Revenue Agency: Due dates and payment dates - Personal income tax
- Government of Canada: RRSPs and Other
- Government of Canada: Old Age Security pension recovery tax