Signing bonuses are taxed as ordinary income at whatever marginal rate applies to your total earnings for the year. What throws people off is the paycheck: employers usually withhold a flat 22% for federal income tax on the bonus, then stack Social Security, Medicare, and state or local taxes on top, so the deposit can land 35% to 45% lighter than the number in your offer letter.1Internal Revenue Service. Employer’s Tax Guide – Section: 7. Supplemental Wages That withholding is a prepayment estimate, not your final bill. The real number gets settled when you file, and plenty of people get some of it back.
Why the Withholding Looks So Aggressive
The IRS classifies a signing bonus as “supplemental wages,” the same category that covers commissions and overtime.2eCFR. 26 CFR 31.3402(g)-1 – Supplemental Wage Payments That label changes how your employer calculates withholding. Regular paychecks use your W-4 elections and the standard tax tables. Supplemental wages follow separate rules designed to pull tax out upfront.
Your employer picks between two methods, and the choice depends mostly on how the bonus arrives.
Flat 22% If the Bonus Is a Separate Check
When the bonus is paid on its own, your employer can withhold a flat 22% for federal income tax on the first $1 million of supplemental wages you receive from that employer during the calendar year.1Internal Revenue Service. Employer’s Tax Guide – Section: 7. Supplemental Wages Nearly every signing bonus sits under that ceiling, so 22% is what most people see.
Important distinction: 22% is a withholding rate, not your tax rate. If your income puts you in the 12% bracket, too much came out and you’ll get the difference back. If you’re in the 32% or 35% bracket, not enough came out and you’ll owe more. The flat rate overshoots for some earners and undershoots for others.
The Aggregate Method If It’s Lumped Into Your Paycheck
If the bonus is added to a regular paycheck, your employer uses the aggregate method. The payroll system treats the combined total as though it were one giant regular check, then applies your W-4 elections and the standard tax tables. Because the withholding tables assume you earn that inflated amount every pay period, they often pull out even more than the flat 22% would have. It sorts itself out at filing, but it makes the initial deposit feel worse.
The Other Deductions Stacked On Top
Federal income tax withholding is only part of what comes out. FICA and state taxes are separate, and most of them are real, not estimates.
Social Security tax takes 6.2% of the bonus, up to the annual wage base of $184,500 for 2026.3Social Security Administration. Contribution and Benefit Base Once your year-to-date wages hit that ceiling, no more Social Security tax comes out.
Medicare tax takes another 1.45% with no cap. If your wages from the job pass $200,000 in a year, your employer starts withholding an additional 0.9% Medicare surtax on top of the regular 1.45%.4Internal Revenue Service. Topic no. 560, Additional Medicare Tax The thresholds for actually owing the surtax are $200,000 for single filers, $250,000 for joint filers, and $125,000 for married filing separately. Joint filers whose household total stays under $250,000 can reclaim excess withholding at filing.
State and local income tax withholding depends entirely on where you work. Some states apply a flat supplemental rate, some run it through regular tables, and a few have no income tax at all. In high-tax states, another 5% to 13% can come out.
Add it up and total withholding on a signing bonus can reach 40% or more. That’s the math behind a $20,000 bonus landing as a $12,000 deposit.
What You Actually Owe at Year-End
Everything above is withholding. Your actual tax gets calculated when you file, and by then the bonus is just part of your total ordinary income for the year, taxed through the same brackets as your salary.
For 2026, the federal brackets for single filers are:5Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- 10% up to $12,400
- 12% from $12,401 to $50,400
- 22% from $50,401 to $105,700
- 24% from $105,701 to $201,775
- 32% from $201,776 to $256,225
- 35% from $256,226 to $640,600
- 37% over $640,600
Joint filer thresholds are roughly double. The 2026 standard deduction is $16,100 for single filers and $32,200 for married filing jointly.5Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
A concrete example. A single filer earning $75,000 in salary plus a $15,000 signing bonus has $90,000 in total income and $73,900 in taxable income after the standard deduction. The bonus sits in the 22% bracket, so the 22% withholding is close to a perfect match, and the filer breaks about even.
Change the salary to $45,000 and total taxable income drops to $43,900, most of it in the 12% bracket. The 22% withheld from the bonus was too much, and some of it comes back as a refund.
Now push the salary to $200,000. Most of the $15,000 bonus lands in the 32% bracket. The 22% withheld fell short, and the filer owes the difference in April.
Fixing Over- or Under-Withholding Before April
If a large bonus was over-withheld early in the year, you don’t have to wait for a refund to see the money. Submit an updated Form W-4 to your employer to reduce withholding on the rest of your regular paychecks.6Internal Revenue Service. Tax Withholding The IRS Tax Withholding Estimator at irs.gov can help you dial in the right adjustment.
The opposite problem matters more, because it comes with a penalty. If 22% wasn’t enough to cover your actual bracket, you could owe an underpayment penalty at filing. The IRS generally waives it if your total withholding and estimated payments cover at least 90% of your current-year tax or 100% of last year’s tax, whichever is smaller.7Internal Revenue Service. Topic no. 306, Penalty for Underpayment of Estimated Tax If the bonus knocks you outside that safe harbor, either raise your W-4 withholding for the rest of the year or make an estimated payment before year-end.
If You Have to Repay the Bonus
Most signing bonuses come with a clawback clause requiring repayment if you leave within a set period, typically one to two years. The tax handling depends on when you pay it back.
Same tax year. If you repay in the same calendar year you received the bonus, your employer can adjust your W-2 to remove the wages, and the withheld taxes get sorted out through your return. Verify the adjustment appears on the W-2 before you file.
Later tax year. Repaying after December 31 is messier, because you already paid tax on the full amount. Many employers require repayment of the gross, pre-tax figure, meaning you write a check for more than you actually took home. For repayments over $3,000, the claim of right rule gives you two options: deduct the repaid amount on your current-year return, or calculate the tax credit you would have received if the income had never been reported in the prior year and apply that credit against your current-year tax.8Office of the Law Revision Counsel. 26 USC 1341 – Computation of Tax Where Taxpayer Restores Substantial Amount Held Under Claim of Right Compute it both ways and use whichever produces the lower bill.
For repayments of $3,000 or less that cross tax years, relief is limited to a miscellaneous itemized deduction, which does little for most filers. That’s a good reason to negotiate a net-amount repayment clause in the offer letter: if you only have to repay what you actually received after taxes, a later exit costs you far less.