Feb 21, 2026
If the majority of American workers were to get their way, cash bonuses would become a thing of the past.
A new study found that workers who receive extra vacation days generally feel more recognized and valued than those who were handed extra money, according to the Wall Street Journal (1). And experts say it’s not that paid time off is inherently better than cash, but that uninterrupted time away from work provides breathing room that allows people to recharge and enjoy life.
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The study’s participants were asked to respond to the question of paid time off versus a cash bonus on a seven-point scale; the low end represented feeling more like a robot, while the high end represented feeling more like a human. Paid vacation time was given an average score of 5.4, while monetary bonuses were given a score of 5.04.
“While that difference may sound modest numerically, it represents a meaningful psychological shift,” Sanford DeVoe, one of the study’s authors who is also a professor at the Anderson School of Management at the University of California, shared with the WSJ. “It’s the difference between feeling neutral and feeling genuinely seen as a person.”
With today’s economic uncertainty, return-to-office rules and rising levels of burnout, many workers seem to put flexibility and downtime ahead of one-off cash bonuses, but there are important financial implications for each option that workers should know.
The financial implications of cash versus time off
When weighing cash bonuses against paid time off, it’s worth looking beyond the surface. Both options are great, but they can affect your finances in different ways. Here’s a breakdown of some of the financial implications.
Bonuses are taxed differently than base pay
The IRS treats most performance bonuses as supplemental wages. If paid separately, employers withhold 22% for federal income tax on bonuses — or up to 37% if the bonus exceeds $1 million — plus Social Security and Medicare withholdings. This means the amount of cash you end up with may be much less than the gross amount you were initially given (2).
Paid time off isn’t tax-free
Paid time off (PTO) is taxed like regular income, which means taking time off doesn’t trigger a big tax bite the way a lump-sum bonus can. The steady paycheck you receive during a vacation also doesn’t change your overall tax bracket, whereas a cash bonus could potentially do just that (3).
PTO is already part of compensation packages
Government data shows that paid leave accounts for about 7.4% of total employer compensation costs on average, with vacation time making up a significant chunk of that percentage (4).
Employers are focusing on PTO as a retention tool
Research from the Society for Human Resource Management shows leave benefits aren’t just nice for employees to have. In fact, organizations see PTO as critical for well-being and employee retention, helping workers to avoid burnout and maintain a steady work-life balance (5).
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How workers can consider PTO versus bonuses
Here are some questions you may want to consider to help frame your perspective around cash bonuses versus time off.
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What’s the tax impact of a bonus?
Remember, bonus withholding often uses a flat supplemental rate (22%) rather than your usual pay period withholding rate.
Are you in need of a break?
If you’re burnt out or struggling to unplug, extra PTO might improve your energy and productivity more than a one-time payout.
How’s your job security and future earning potential?
If you’re planning on staying with an employer long term, negotiated PTO that accrues over time can be more valuable than a short-lived bonus.
Do you live in a high-tax jurisdiction?
Higher state and local tax rates can potentially make a large bonus less appealing when compared with the steady value of time off.
When it comes to cash bonuses versus time off, there are always trade-offs to keep in mind. Cash bonuses can be helpful for paying down debt, increasing your savings or investing, but on the other hand, paid time off can lower stress levels and support both mental and physical health.
For many workers, being able to rest without interruption can feel more meaningful than a big bonus check. Whether you’re negotiating an offer, a raise or planning next year’s career moves, weighing the monetary and psychological implications of both options can help you make a choice that fits your finances and your lifestyle.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
The Wall Street Journal (1); IRS (2); LegalClarity.org (3); U.S. Bureau of Labour Statistics (4); Society for Human Resource Management (5).
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Jessica is a freelance writer with a professional background in economic development and small business consulting. She has a Bachelor of Arts in Communications and Sociology and is completing her Publishing Certificate.
