Your employer offers you a choice: a $5,000 pay rise or a $5,000 bonus. They sound identical — but after tax, after super, and after a few years, they aren’t. The tax treatment in the year you receive them is the same (both are ordinary income taxed at your marginal rate), but a pay rise compounds: it repeats every year, attracts 12% super, and lifts every future raise. A bonus is a one-off sugar hit. This guide compares them dollar for dollar under 2025-26 rules, shows when a bonus can still win, and explains how salary sacrificing the bonus changes the maths.
All tax figures use the 2025-26 resident rates plus the 2% Medicare levy. Check your exact position with our pay rise calculator, bonus tax calculator and income tax calculator.
The tax treatment: the same, then different
First, the part most people get wrong. In Australia, bonuses and pay rises are taxed identically: both are ordinary employment income, taxed at your marginal rate in the year you receive them. There’s no special “bonus tax rate”.
What confuses people is PAYG withholding: your employer may withhold tax on a bonus at a different rate than your regular pay (lump-sum withholding rules can apply). But withholding is just a prepayment — when you lodge your tax return, your actual tax is calculated on your total annual income. If too much was withheld from your bonus, you get it back as a refund; if too little, you pay the difference. The end result is the same as if the bonus had been salary.
Example — $100,000 earner, $5,000 extra. At $100,000 your marginal rate is 30% plus 2% Medicare = 32%. Whether it’s a raise or a bonus:
- Tax: $5,000 × 32% = $1,600
- You keep: $3,400 either way — in year one.
So where does the difference come from? Everything that happens after year one.
Why the pay rise wins: compounding
A pay rise permanently lifts your salary base. That means:
- It repeats. A $5,000 raise pays $3,400 after tax every year you stay in the job. A $5,000 bonus pays $3,400 once.
- Future rises build on it. Next year’s 4% raise applies to $105,000, not $100,000 — an extra $200 a year, compounding quietly.
- Super follows salary. A $5,000 raise attracts 12% super guarantee — $600 a year into your super. Most bonuses are excluded from superable pay (they’re generally not ordinary time earnings), so the bonus gets $0.
10-year value — $5,000 raise vs $5,000 bonus (at $100,000, 32% marginal):
| Measure | $5,000 pay rise | $5,000 bonus |
|---|---|---|
| After-tax cash, year 1 | $3,400 | $3,400 |
| After-tax cash, years 1–10 | $34,000 | $3,400 |
| Extra super (12% SG) | $6,000 | $0 (typically) |
| Effect on next 4% raise | +$200/yr extra | None |
| 10-year total value | ~$40,000+ | $3,400 |
The pay rise is worth roughly ten times the bonus over a decade — and the gap keeps widening every year you stay.
A bigger example: $10,000 at $180,000
At $180,000 your marginal rate is 37% + 2% Medicare = 39%. A $10,000 raise or bonus leaves you $6,100 after tax in year one. But:
- The raise pays $6,100 every year, adds $1,200 a year to super (12% of $10,000), and lifts all future percentage increases.
- The bonus pays $6,100 once and typically adds nothing to super.
- Over 10 years: the raise delivers $61,000 in cash plus $12,000 in super; the bonus delivers $6,100. The raise is worth more than eleven times as much.
At higher incomes the absolute gap is even larger — which is why experienced negotiators almost always push for base-salary increases over one-off payments.
The break-even maths: how fast the raise catches up
Even when a bonus is bigger than the raise on offer, the raise catches up fast. Take a $5,000 raise versus a $10,000 bonus for our $100,000 earner (32% marginal rate):
| Year | $5,000 raise (cumulative after-tax) | $10,000 bonus (cumulative after-tax) |
|---|---|---|
| 1 | $3,400 | $6,800 |
| 2 | $6,800 | $6,800 |
| 3 | $10,200 | $6,800 |
| 5 | $17,000 | $6,800 |
The raise draws level in year two and pulls ahead permanently from year three — and that’s before counting the extra super ($600 a year on the raise, $0 on the bonus) and the lift to future percentage increases. A bonus needs to be more than double the raise to stay ahead over a typical 3-4 year tenure, and almost no employer offers that ratio.
When a bonus can still be the better choice
The pay rise usually wins, but not always:
- You might leave soon. If you’re changing jobs within a year or two, you’ll never collect the compounding benefit of the raise — take the cash now.
- The bonus is much bigger. Employers often offer bonuses at 1.5-2x the equivalent raise because they know the raise costs them more long-term. A $10,000 bonus beats a $5,000 raise in year one ($6,100 vs $3,400 after tax at 32%) — though the raise still catches up within a few years.
- Salary bands are capped. If you’re at the top of your pay band and a raise isn’t on the table, a bonus is found money.
- Variable pay suits your role. In sales and executive roles, bonuses tied to performance can exceed what any fixed raise would offer in a good year.
- Tax-bracket timing. If you know next year’s income will be lower (parental leave, study, sabbatical), a bonus paid next year could be taxed at a lower marginal rate than a raise banked this year. Conversely, if this is a low-income year, take the bonus now.
The salary-sacrifice twist
Here’s where bonuses get interesting again. If your employer lets you salary sacrifice your bonus into super, the bonus suddenly gets the tax treatment the pay rise can’t match in a single year. A $10,000 bonus sacrificed by our $180,000 earner:
- Taken as cash: taxed at 39% → keeps $6,100.
- Sacrificed into super: taxed at 15% in the fund → $8,500 lands in super.
- Net benefit: $2,400 extra (24 cents in the dollar) versus taking the cash.
The constraints: the sacrificed bonus counts toward your $30,000 concessional contributions cap for 2025-26 (including your employer’s 12% SG), the money is locked until preservation age, and above $250,000 of income-plus-contributions, Division 293 adds another 15% — halving the advantage. But for a mid-career earner with cap room, sacrificing the bonus is often the highest-value use of it.
How to negotiate: the decision framework
- Always ask for the raise first. Base salary compounds; bonuses don’t. Even a smaller raise usually beats a bigger bonus within 2-3 years.
- Do the 3-year maths. Compare (raise × 3 years after tax + super) against (bonus after tax). The raise almost always wins by year three.
- If they won’t move on base, negotiate the bonus and how it’s paid. A bonus you can salary sacrifice is worth 15-24% more than one you take as cash.
- Check the super treatment in writing. Some enterprise agreements do include bonuses in superable earnings — if yours does, the bonus’s disadvantage shrinks.
- Consider the non-financials. A higher base salary also lifts redundancy payouts, long-service leave, overtime rates and future borrowing capacity — none of which a bonus touches.
Frequently asked questions
Are bonuses taxed more than salary in Australia?
No. Bonuses are ordinary income taxed at your marginal rate, exactly like salary. Withholding on the payslip may differ, but your tax return reconciles everything to your total annual income.
Is a pay rise or bonus better for super?
A pay rise, by a wide margin. Salary attracts the 12% super guarantee; most bonuses are excluded from superable pay as they’re not ordinary time earnings.
Should I salary sacrifice my bonus?
Usually yes, if you have concessional cap room ($30,000 for 2025-26 including SG) and don’t need the cash. At a 39% marginal rate you save 24 cents per dollar; at 47% you save 32 cents.
Does a bonus affect my tax bracket?
A bonus adds to your total annual income, so a large one can push some dollars into the next bracket — but only those dollars are taxed at the higher rate. It never makes you worse off overall.
Can I ask for a raise instead of a bonus?
Yes, and you should. Employers often prefer bonuses because they’re cheaper long-term; knowing that gives you negotiating leverage to push for base-salary movement instead.
What if I receive the bonus in a different financial year?
Bonuses are taxed in the year you receive them. If you can legitimately time receipt into a lower-income year (e.g. during parental leave), the marginal rate — and the tax — will be lower.
Conclusion
In year one, a $5,000 pay rise and a $5,000 bonus leave you with the same $3,400 after tax. From year two onward, there’s no contest: the raise pays again, grows your super by $600 a year, lifts every future increase, and pads redundancy and leave payouts. Over a decade it’s worth roughly ten times the bonus. Take the bonus only when you’re leaving soon, when it’s much larger than the raise on offer, or when you can salary sacrifice it into super and bank the tax saving.
Before your next performance review, arm yourself with numbers: our pay rise calculator shows what a raise is really worth after tax, the bonus tax calculator breaks down any bonus offer, and the income tax calculator keeps the whole picture in view.