How to Change Your Tax Withholding for a Bonus

To change your tax withholding for a bonus, submit an updated Form W-4 to your employer before the bonus payroll runs — typically by increasing the deductions figure on Step 4(b) so less federal income tax is withheld — and then file a second W-4 immediately after the bonus posts to return your withholding to normal. The mechanics are simple; the timing and the follow-up are where people trip.

Your employer is required to withhold something on a bonus because the IRS treats it as “supplemental wages,” a category that also covers commissions, overtime, severance, and back pay.¹ What comes out of the check is a prepayment against your annual tax bill, not the final tax. Adjusting the W-4 shifts money from “prepaid now” to “settled at filing,” which is exactly what you want if the default withholding is eating more of the bonus than your actual tax rate justifies.

Know Which Method Your Employer Is Using

Before you change anything, find out how your payroll department calculates the bonus withholding, because the two methods produce very different starting points.

If the bonus is paid on a separate check or shown as a distinct line item, the employer can withhold a flat 22% for federal income tax on bonus amounts up to $1 million in the year.¹ Same rate for everyone, regardless of bracket. If your marginal rate is 12%, the flat rate is over-withholding; if it’s 32%, it’s under-withholding.

If the bonus is folded into a regular paycheck without being separately identified, the employer runs the combined amount through the standard payroll formula. That formula annualizes the paycheck, so a $10,000 bonus added to a $3,000 biweekly check is taxed as though you earn $13,000 every two weeks — roughly $338,000 annualized — even though you don’t. This “aggregate” method almost always withholds more than the flat 22%.¹

The choice belongs to the employer, not you.² You can ask payroll to use the flat 22% and many will accommodate it, but they’re not obligated to. If they won’t, the W-4 is your remaining lever, and it matters more when the aggregate method is in play.

Which W-4 Line Reduces Bonus Withholding

Two lines on the current W-4 pull withholding down:

Step 4(b), Deductions. Entering a larger dollar amount here tells the payroll system you have more deductions than the standard, which reduces the income subject to withholding.³
Step 3, Credits. A larger dollar amount here increases the credits applied against your withholding, cutting the tax on each paycheck directly.

Step 4(b) is the cleaner choice for most people because the math tracks the bonus. If you expect a $10,000 bonus and payroll uses the aggregate method, entering roughly $10,000 in Step 4(b) will offset most of the extra withholding that bonus would otherwise generate. Exact results depend on your regular pay and your other W-4 entries, so aim for the right neighborhood rather than trying to nail it to the dollar.

Don’t guess when you don’t have to. The IRS Tax Withholding Estimator at irs.gov/W4App takes your year-to-date withholding, expected income, and filing status and returns specific numbers for each W-4 line.⁴ The W-4 itself recommends this tool for anyone who receives bonuses during the year.³

Submit Early — Employers Have 30 Days

Publication 15 requires an employer to begin using a new W-4 “no later than the start of the first payroll period ending on or after the 30th day from the date when you received the replacement Form W-4.”¹ That’s the outer limit. Some payroll departments turn changes around faster, but nothing forces them to.

Practical consequence: if your bonus is two weeks out and you hand in the new W-4 today, there’s no guarantee it will be in effect for that payroll. Submit as early as you can and confirm with your payroll or HR contact that the change is live before the bonus runs. If it can’t be processed in time, the W-4 you file today may only affect the paychecks that follow the bonus, which is the opposite of what you want.

File the Reversal Right After the Bonus

The adjustment and the reversal are both mandatory steps. The larger deductions figure that reduces withholding on the bonus will keep reducing withholding on every regular paycheck afterward if you leave it in place. Miss the reset and you’ll under-withhold for months, then owe the accumulated shortfall in April, possibly with a penalty on top.

Submit a second W-4 restoring your normal entries as soon as the bonus posts. Treat it as part of the same task — don’t close the loop until both forms are filed and payroll has confirmed the second change.

The 401(k) Alternative

If your plan allows it, raising your 401(k) contribution rate before the bonus pay period can shrink the taxable portion of the bonus directly. Traditional 401(k) contributions come out pre-tax, so $5,000 of a bonus routed into your 401(k) reduces your taxable supplemental wages by $5,000. The money stays yours; it just moves to your retirement account instead of your checking account.

The 2026 elective deferral limit is $24,500.⁵ Bonus contributions count toward that cap, so check your year-to-date contributions first. Also ask HR whether the plan accepts mid-year rate changes and whether they can take effect before the bonus payroll runs; some plans restrict the timing.

Don’t Cut Withholding So Far That You Trigger a Penalty

Reducing bonus withholding means less tax reaches the IRS during the year. Go too far and you’ll owe a balance at filing — and if the shortfall is large enough, an underpayment penalty on top.

The penalty generally applies when you owe $1,000 or more after subtracting all payments and credits.⁶ It’s calculated at the federal short-term rate plus 3 percentage points — 7% for the first quarter of 2026, 6% for the second.⁷

Two safe harbors keep you out of penalty territory:⁶

Your total payments cover at least 90% of your current-year tax.
Your total payments equal or exceed 100% of last year’s total tax — 110% if last year’s AGI was over $150,000 ($75,000 if married filing separately).

The prior-year safe harbor is the easier target when planning a bonus adjustment because you know the number exactly. Pull last year’s return, find the total tax line, and make sure your 2026 withholding will at least match it (or 110% of it if applicable). If your reduced bonus withholding drops you below that threshold, close the gap by either increasing withholding on later regular paychecks — Step 4(c) on the W-4 lets you add a flat dollar amount per pay period — or by making an estimated payment with Form 1040-ES.⁸⁹ Estimated payments are due quarterly on April 15, June 15, September 15, and January 15 of the following year. Adjusting withholding is usually simpler because it happens automatically.

What the W-4 Won’t Change

Two pieces of the bonus deduction are outside your reach through the federal W-4.

FICA taxes apply to bonuses no matter what your W-4 says: 6.2% for Social Security on earnings up to $184,500 in 2026, and 1.45% for Medicare on all earnings.¹⁰¹¹ Wages above $200,000 in a year carry an additional 0.9% Medicare tax. None of that changes with a W-4 adjustment.

State income tax withholding also runs on its own track. Most states with an income tax withhold on bonuses, often at their own flat supplemental rate, and the federal W-4 doesn’t touch it. If you want to change state withholding, you’ll usually need to file a separate state form. Residents of Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax to worry about.

1
Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
2
eCFR. 26 CFR 31.3402(g)-1 – Supplemental Wage Payments
3
Internal Revenue Service. Form W-4 – Employee’s Withholding Certificate (2026)
4
Internal Revenue Service. Tax Withholding Estimator
5
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
6
Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
7
Internal Revenue Service. Quarterly Interest Rates
8
Internal Revenue Service. About Form 1040-ES, Estimated Tax for Individuals
9
Internal Revenue Service. Estimated Taxes
10
Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
11
Social Security Administration. What Is the Current Maximum Amount of Taxable Earnings for Social Security