Question 1

Should I take a bonus or salary increase?

Accepted Answer

In most cases, a salary increase is better long-term because it compounds over time. A salary raise increases your baseline for future raises, retirement contributions, and benefits. However, a large bonus can be valuable if you invest it wisely or use it to pay off high-interest debt. Use our calculator to compare the exact difference over your expected tenure.

Question 2

How are bonuses and salary increases taxed differently?

Accepted Answer

Bonuses are often taxed at a flat supplemental wage rate (typically 22-37% in the US, 30% in India), while salary increases are taxed at your regular income tax bracket. However, both ultimately count as ordinary income when filing taxes. The perceived higher tax on bonuses is often just withholding, and the actual tax owed is reconciled during tax filing.

Question 3

Does a salary increase affect my future earnings potential?

Accepted Answer

Yes, significantly. A salary increase becomes your new baseline, affecting all future percentage-based raises, bonuses calculated as a percentage of salary, retirement contributions (if percentage-based), and your negotiating position for future jobs. A 10% raise today might result in 30-50% more earnings over 10 years compared to an equivalent one-time bonus.

Question 4

What if my employer offers both bonus and raise?

Accepted Answer

This is often the best scenario. Negotiate for as much salary increase as possible since it compounds over time, while accepting a bonus as additional compensation. Even a smaller raise (5%) plus a bonus is usually better than a larger bonus alone. Remember that bonuses are not guaranteed in future years, but salary increases are permanent.

Question 5

How much better is a salary increase than a bonus over 5 years?

Accepted Answer

Over 5 years with typical 5% annual raises, a Rs.1,50,000 salary increase can be worth Rs.8-10 lakhs more than a Rs.2,00,000 one-time bonus, depending on investment returns and future raise percentages. The gap widens further over 10+ years due to compounding. Use our calculator with your specific numbers to see the exact difference.

Bonus vs Salary Increase Calculator

Comparison Results

Year 1 Comparison

Total Over Period

Cumulative Comparison

Verdict

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