---
title: Annual bonus — what it means and why it matters | Allocate AI
description: A once-a-year cash payment based on company and individual performance, usually expressed as a target percentage of base salary.
canonical: https://allocateai.io/glossary/annual-bonus
site: Allocate AI — https://allocateai.io
---

# Annual bonus

A once-a-year cash payment based on company and individual performance, usually expressed as a target percentage of base salary.

An annual bonus is cash paid once a year, typically in the first quarter, for the previous year's work. It is usually described as a target, for example 15% of base salary, and the actual amount is that target multiplied by a company factor and sometimes an individual factor. A 15% target on a $120,000 salary is $18,000 at target; a strong year might pay 120% of that and a weak one 60%.

The word target is doing a lot of work. It is not a guarantee. Company performance, budget, and manager discretion all move the number, and some years pay zero. That is why the safest way to plan around a bonus is to count it only for things that can wait: a goal you can push out, a lump sum toward a purchase, an extra debt payment.

Bonuses are taxed as supplemental wages, with 22% federal withholding (2026) plus payroll and state taxes, so the deposit is noticeably smaller than the headline. Many plans also require you to be employed on the payment date, not just through the year it covers, which matters if you are planning a move in January or February.

The common mistake is folding the target into monthly spending as if it were salary. In Allocate, a bonus is an expected income event on its expected date, and it can be matched to a specific goal so the goal is funded when the money lands and not before.

[Try the Comp Comparison →](https://allocateai.io/calculators/comp-comparison)

## Related terms

- [Supplemental wages (and supplemental withholding)](https://allocateai.io/glossary/supplemental-wages) — Pay that is not regular salary, like bonuses, commissions, and vested stock, which the IRS lets employers withhold on at a flat 22% rate (2026).
- [Expected income event](https://allocateai.io/glossary/expected-income-event) — In Allocate, a bonus, commission, or stock vest you tell the app about in advance, so the plan counts it as income on the date it is due to arrive.
- [Lump sum matched to a goal](https://allocateai.io/glossary/lump-sum-matched-to-goal) — In Allocate, an expected one-off payment, like a bonus or vest, assigned to fund a specific goal, so the goal counts it and stops warning.
- [Total compensation](https://allocateai.io/glossary/total-compensation) — Everything a job pays in a year added together: base salary, bonus, stock, and sometimes benefits, as opposed to the salary figure alone.

**Plan in plain language.**

Allocate answers “can I afford this?” from your own numbers, writes the plan, and stages every change for your yes. It starts from an estimate before you link a bank.

[Get started](https://app.allocateai.io/signup)

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Allocate AI is a budgeting and financial-planning app: link your accounts, say what you want in plain words, and it writes the plan and stages every change for your approval. Read more at https://allocateai.io or see all pages in https://allocateai.io/llms.txt.