Bonuses are not taxed differently than regular pay. Every dollar of a bonus is ordinary income, taxed at the same federal brackets as your salary once you file your return. What’s different is the withholding: the IRS requires employers to pull federal income tax from bonuses using a special formula for supplemental wages, and the most common one takes a flat 22% off the top no matter what bracket you’re actually in. That gap between what gets withheld and what you truly owe gets sorted out on your Form 1040.
Why Your Bonus Check Looks So Small
The IRS labels bonuses as “supplemental wages,” a category that also includes commissions, severance, back pay, and awards. That label doesn’t change the tax rate on the money. It only tells your employer’s payroll system which withholding formula to run.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide – Section: 7. Supplemental Wages
Employers have two IRS-approved methods to choose from when a bonus is paid separately from your regular paycheck. Neither one is meant to calculate your final tax. Both are estimates.
The Flat 22% Method
Most employers use this one because it’s simple. Payroll withholds exactly 22% of the bonus for federal income tax, ignoring your W-4 and your salary. A $5,000 bonus loses $1,100 to federal withholding whether you’re in the 12% bracket or the 35% bracket.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide – Section: 7. Supplemental Wages
This is where the “bonuses are taxed higher” belief comes from. If your true marginal rate is 12%, the flat 22% is over-withholding by ten percentage points, and you’ll get the extra back as a bigger refund. If your marginal rate is 32%, the flat 22% is under-withholding and you’ll owe the difference at filing.
The Aggregate Method
The second option is heavier math. Your employer adds the bonus to your regular wages for that pay period, runs the combined total through the normal withholding tables using your W-4, subtracts what was already withheld from your regular pay, and takes the rest out of the bonus.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide – Section: 7. Supplemental Wages
The aggregate method often withholds even more than 22%, because payroll treats that inflated pay period as if it were your normal one. A $10,000 bonus paid alongside a $3,000 biweekly check makes the system think you earn $13,000 every two weeks, which annualizes to about $338,000, and it withholds at that pace. The over-withholding straightens out on your return, but the bonus check itself will look brutal.
Bonuses Over $1 Million
Once your supplemental wages from a single employer cross $1 million in a calendar year, a mandatory 37% withholding rate applies to every dollar above the threshold. Your W-4 doesn’t change that. The rate matches the current top marginal bracket, so it lands close to accurate for most people in that range.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide – Section: 7. Supplemental Wages
FICA Comes Out Too
Federal income tax isn’t the only line on the check. Bonuses are subject to Social Security and Medicare at the same rates as your salary, which is a big reason the total bite feels heavy.
- Social Security: 6.2% on wages up to the 2026 wage base of $184,500. If your salary has already carried you past that cap before the bonus arrives, the bonus escapes this tax.2Internal Revenue Service. Topic no. 751, Social Security and Medicare Withholding Rates
- Medicare: 1.45% on all wages, no cap.2Internal Revenue Service. Topic no. 751, Social Security and Medicare Withholding Rates
- Additional Medicare Tax: an extra 0.9% on wages above $200,000 in a calendar year. Employers start withholding this once your cumulative pay crosses that line, regardless of filing status.2Internal Revenue Service. Topic no. 751, Social Security and Medicare Withholding Rates
The Social Security cap creates real variation between employees. Someone earning $190,000 in base salary has already exceeded the wage base, so their bonus skips the 6.2% entirely. Someone earning $80,000 pays it on the full bonus. On a $10,000 bonus, that difference alone swings the total withholding by more than $600.
How Your Actual Tax Gets Settled
Whatever came out of the bonus check is just a deposit. The real number is calculated on your Form 1040, where the bonus is folded in with salary, investment income, freelance earnings, and everything else, then run through the progressive brackets.
Your bonus doesn’t get its own bracket. It stacks on top of your other income and is taxed at whatever marginal rate applies to those additional dollars. If your salary already lands you at $90,000 of taxable income, a $10,000 bonus is taxed at 22%, the rate covering the $50,401–$105,700 band for single filers in 2026. If you were at $104,000 and got a $10,000 bonus, a small slice of it stays at 22% and the rest spills into the 24% bracket.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
Your effective rate, averaged across all your income, is always lower than your top marginal rate. Someone with $100,000 in taxable income doesn’t pay 22% on the whole amount; the first $12,400 is taxed at 10%, the next portion at 12%, and only the piece above $50,400 at 22%. The flat 22% bonus withholding is a rough middle-of-the-road guess. It lands close to accurate for people in the middle brackets, high for lower earners, and low for higher earners.
When a Bonus Triggers Something Else
A bonus can push you past income thresholds that reduce credits or create new taxes you wouldn’t have owed at your salary alone. These effects are easy to miss.
The Child Tax Credit begins phasing out at $200,000 of modified adjusted gross income for single filers and $400,000 for joint filers, dropping by $50 for every $1,000 of excess.4Internal Revenue Service. Child Tax Credit A year-end bonus that lifts you over the line reduces the credit. Education credits and other income-tested deductions work similarly.
The 3.8% Net Investment Income Tax doesn’t hit the bonus itself, because wages aren’t investment income. But NIIT kicks in on investment income once your MAGI exceeds $200,000 (single) or $250,000 (joint). A bonus that pushes MAGI above those lines suddenly subjects your dividends, rental income, and capital gains to the extra 3.8%.5Internal Revenue Service. Topic no. 559, Net Investment Income Tax
If the bonus creates a tax liability that your withholding didn’t cover, you may face an underpayment penalty. You’re in the safe harbor if you owe less than $1,000 at filing time, or if your total payments during the year covered at least 90% of your current-year tax or 100% of your prior-year tax, whichever is less. If your prior-year AGI exceeded $150,000, that 100% figure rises to 110%.6Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
Ways to Soften the Impact
You can’t overrule the withholding formula your employer uses. You can shape what happens around it.
Route Part of It Into a 401(k)
If your employer’s plan allows bonus deferrals, contributing part or all of a bonus to a traditional 401(k) reduces your taxable income for the year and postpones the tax. The 2026 elective deferral limit is $24,500, with an $8,000 catch-up for age 50 and older, and $11,250 for ages 60 through 63.7Internal Revenue Service. Retirement Topics – 401(k) and Profit-Sharing Plan Contribution Limits
Check the math before you elect. If you’ve been contributing steadily all year, you may already be close to the annual cap by the time a year-end bonus arrives. Excess deferrals that aren’t corrected in time get taxed twice.
Adjust Your W-4
If you expect the flat 22% to over-withhold significantly, you can lower the withholding on your regular paychecks to compensate. The IRS Tax Withholding Estimator at irs.gov/W4App accounts for bonuses and other supplemental pay. Step 4(b) on Form W-4 claims additional deductions that lower regular withholding; Step 4(c) adds extra withholding if you expect to be short.8Internal Revenue Service. Form W-4 (2026) Employee’s Withholding Certificate
Timing matters. Changing the W-4 after the bonus is paid won’t affect the bonus withholding itself, only your remaining paychecks. Reset it once the situation returns to normal.
Gift Cards, Trips, and Other Non-Cash Bonuses
Physical gifts, company trips, and gift cards from an employer are taxable too, and this catches people off guard. The IRS values non-cash bonuses at fair market value and treats them as supplemental wages, subject to the same 22% federal withholding and FICA as a cash bonus.9Internal Revenue Service. Employer’s Tax Guide to Fringe Benefits
Gift cards are never tax-free, no matter how small. The IRS treats them as cash equivalents, so even a $25 card is technically taxable wages. Employers add the value to your W-2 and typically withhold the tax from a future paycheck, since there’s no cash bonus to pull it from.9Internal Revenue Service. Employer’s Tax Guide to Fringe Benefits
Small, infrequent perks like occasional office snacks, a holiday ham, or a company picnic can qualify as “de minimis fringe benefits” and stay out of income. There’s no bright-line dollar cutoff. The IRS looks at value, frequency, and whether the benefit looks like disguised compensation. A company-paid vacation doesn’t qualify.10Internal Revenue Service. De Minimis Fringe Benefits
State Withholding Is a Separate Layer
Nine states don’t tax wage income, so residents there only deal with federal withholding on a bonus. In the states that do tax wages, treatment of supplemental pay varies. Some set their own flat withholding rate for bonuses, running roughly from 1.5% to over 11%. Others require the aggregate method, combining the bonus with regular pay and running the total through standard withholding tables. Whatever the state does, it creates the same over- or under-withholding dynamic as the federal system, and gets reconciled on your state return.