Bonus Sacrifice Calculator
Calculate tax savings from salary sacrificing a bonus into superannuation or pension. Enter values for instant results with step-by-step formulas.
Reviewed by Sahil, Senior Finance & Tax Editor
Formula
Tax Savings = Bonus x (Federal Rate + State Rate + FICA Rate)
The calculator compares taking your bonus as taxable cash versus redirecting it pre-tax into a retirement account. Tax savings equal the bonus multiplied by your combined marginal tax rate. Employer match adds additional value to the retirement option.
Worked Examples
Example 1: High-Earner Bonus Sacrifice
Problem:You earn $85,000 and receive a $10,000 bonus. Federal tax 32%, state 5%, FICA 7.65%. Employer matches 50% of contributions up to 6% of salary.
Solution:Tax if taken as cash: $10,000 x (32% + 5% + 7.65%) = $4,465\nAfter-tax cash: $10,000 - $4,465 = $5,535\nIf sacrificed: Full $10,000 goes to retirement\nEmployer match: min($10,000, $85,000 x 6%) x 50% = $5,100 x 50% = $2,550\nTotal in retirement: $10,000 + $2,550 = $12,550\nTax savings: $4,465 | Effective gain: $4,465 + $2,550 = $7,015
Result:Cash: $5,535 | Sacrifice: $12,550 in retirement | Tax Savings: $4,465 | Total Gain: $7,015 (70.2%)
Example 2: Mid-Range Bonus Comparison
Problem:Annual salary $60,000, bonus $5,000. Federal 22%, state 4%, FICA 7.65%. No employer match on bonus.
Solution:Tax on bonus: $5,000 x (22% + 4% + 7.65%) = $1,682.50\nAfter-tax cash: $5,000 - $1,682.50 = $3,317.50\nSacrificed: $5,000 goes pre-tax to retirement\nTax savings: $1,682.50\n20-year FV of sacrifice at 7%: $5,000 x (1.07)^20 = $19,348\n20-year FV of cash at 5%: $3,317.50 x (1.05)^20 = $8,804
Result:20-Year Value: Sacrifice $19,348 vs Cash $8,804 | Retirement advantage: $10,544
Frequently Asked Questions
What is bonus sacrifice and how does it save money on taxes?
Bonus sacrifice, also called salary sacrifice or bonus deferral, is an arrangement where you redirect all or part of your bonus into a retirement account like a 401(k), 403(b), or superannuation fund before income tax is applied. Because the money goes directly into a pre-tax retirement account, you avoid paying federal income tax, state income tax, and in some cases FICA taxes on that amount. For someone in the 32% federal bracket with 5% state tax and 7.65% FICA, sacrificing a $10,000 bonus saves approximately $4,465 in taxes. The money then grows tax-deferred in your retirement account. This strategy is particularly valuable for high earners who receive substantial year-end bonuses and are already maximizing their regular paycheck retirement contributions.
How does employer matching work with bonus sacrifice?
Employer matching with bonus sacrifice depends on your specific plan rules, and this is a critical detail to verify with your HR department. Some employers match contributions from bonuses the same way they match regular payroll contributions, typically 50% to 100% of your contribution up to a percentage of salary such as 3% to 6%. Other employers only match contributions from regular paychecks and exclude bonus deferrals from matching. If your employer does match bonus sacrifices, this creates an immediate guaranteed return on top of your tax savings. For example, a $10,000 bonus sacrifice with a 50% match on the first 6% of salary adds an additional $2,550 to $5,100 in free employer contributions. This combination of tax savings plus employer match can effectively increase the value of your bonus by 50% to 80% compared to taking it as cash.
What is the difference between taking a bonus as cash versus sacrificing it?
When you take a bonus as cash, it is treated as supplemental income and taxed at your marginal rate. The IRS allows employers to withhold a flat 22% for federal tax on bonuses under $1 million, but your actual tax liability depends on your total annual income. After federal, state, and FICA taxes, a $10,000 bonus might net you only $5,500 to $6,500 in take-home pay. When you sacrifice the bonus into a retirement account, the full $10,000 goes to work for you immediately, growing tax-deferred. The trade-off is liquidity: you cannot access retirement funds before age 59 and a half without a 10% early withdrawal penalty in most cases. If you need the cash for immediate expenses like debt repayment or an emergency fund, taking the bonus as cash may be the better choice despite the tax hit.
Are there contribution limits that affect bonus sacrifice?
Yes, IRS contribution limits are a critical constraint on bonus sacrifice strategies. For 2024, the employee contribution limit for 401(k) and 403(b) plans is $23,000, or $30,500 if you are age 50 or older with the catch-up provision. Your bonus sacrifice combined with your regular payroll contributions throughout the year cannot exceed this limit. If you have already contributed $20,000 through regular payroll deductions, you can only sacrifice an additional $3,000 of your bonus. Some plans also have a total contribution limit including employer match of $69,000 for 2024. For IRA contributions, the limit is $7,000 or $8,000 with catch-up. Exceeding these limits triggers excess contribution penalties of 6% per year on the excess amount until corrected. Always check your year-to-date contributions before arranging a bonus sacrifice.
References
Reviewed by Sahil, Senior Finance & Tax Editor · Editorial policy