How much is Malaysia tax on my bonus?

When you receive a bonus in Malaysia, a portion of it will be deducted for income tax. The amount of tax on your bonus isn’t a flat rate; it’s calculated as part of your overall annual income using Malaysia’s progressive tax system. This means your bonus is subject to the same tax rates as your regular salary, and it will likely be taxed at your marginal tax rate, which is the highest tax bracket you fall into.

How to Calculate Tax on Your Bonus

For anyone who has ever wondered, “how do I calculate the tax on my bonus?” here’s the simple principle: your employer adds your bonus to your total yearly income and recalculates your total tax liability. The tax on the bonus is essentially the difference in your total tax for the year, with and without the bonus.

Let’s look at a practical example:

Scenario: A single individual with no other reliefs.

• Monthly Salary: RM 7,000
• Annual Bonus: RM 15,000
• Total Annual Income: (RM 7,000 x 12) + RM 15,000 = RM 99,000

1. Calculate Annual Tax without Bonus: A salary of RM 84,000 (RM 7,000 x 12) falls into the RM 70,001–RM 100,000 tax bracket. The tax on the first RM 70,000 is RM 3,700. The remaining RM 14,000 is taxed at a 19% rate, which is RM 2,660.
   • Total Tax: RM 3,700 + RM 2,660 = RM 6,360
2. Calculate Annual Tax with Bonus: A total income of RM 99,000 is still in the same bracket. The tax on the first RM 70,000 is RM 3,700. The remaining RM 29,000 is taxed at 19%, which is RM 5,510.
   • Total Tax: RM 3,700 + RM 5,510 = RM 9,210
3. Tax on the Bonus: Subtract the first result from the second.
   • Tax on Bonus: RM 9,210 – RM 6,360 = RM 2,850

In this example, your RM 15,000 bonus is taxed at an effective rate of 19%, resulting in a deduction of RM 2,850. The amount you take home from your bonus would be RM 12,150, before other deductions like EPF.

The Role of PCB (MTD) and Other Deductions

Your employer uses the Monthly Tax Deduction (MTD), or Potongan Cukai Bulanan (PCB), system to handle this. When your bonus is paid, your employer uses a specific formula to calculate and deduct a larger PCB for that month to account for the increase in your annual income.

• EPF (KWSP): Your bonus is considered “additional wages” and is subject to EPF contributions. This means a portion of your bonus (currently 11% for employees below age 60) will be deducted and contributed to your retirement savings.
• SOCSO & EIS: Bonuses are generally exempt from SOCSO (Social Security) and EIS (Employment Insurance System) contributions. This is a key difference from your regular salary.
• Tax Reliefs: Remember that your tax reliefs (e.g., for personal, spouse, children, EPF contributions, lifestyle expenses) are applied when calculating your total annual tax liability. These reliefs reduce your chargeable income, which can lower your overall tax burden and potentially result in a tax refund when you file your annual tax return (Form BE).

Frequently Asked Questions

• How does my bonus affect my tax bracket?Your bonus is added to your total annual income. If this combined amount pushes you into a higher tax bracket, the portion of your income that falls into that new bracket will be taxed at the higher rate.
• What is the “marginal tax rate” on a bonus?It’s the tax rate applied to your highest income bracket. The bonus is typically taxed at this rate because it’s considered the last part of your income earned for the year.
• Can my company give me a tax-free bonus?No, according to the Inland Revenue Board of Malaysia (LHDN), all bonuses are considered part of your employment income and are fully taxable under the Income Tax Act 1967.
• How can I reduce the tax on my bonus?You can’t reduce the tax on the bonus itself, but you can reduce your overall tax liability by claiming all eligible tax reliefs when you file your annual income tax return. This can lower your chargeable income and potentially lead to a tax refund.
• Is a performance bonus taxed differently from a festive bonus?No, LHDN treats all forms of bonuses, whether based on performance, productivity, or festive occasions, as taxable income. The calculation for the tax deduction remains the same.