If your employer’s payroll system already has a 401(k) deferral election on file, it will almost certainly apply that same percentage when a 401(k) is deducted from your bonus check. A 10% deferral takes 10% of the bonus, just as it takes 10% of a regular paycheck. Whether that automatic behavior helps or hurts you depends on three things: how close the bonus pushes you to the $24,500 elective deferral limit for 2026,1Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 how your employer calculates its matching contribution, and whether you’d rather have the cash now or the tax deferral.
Why the Deduction Happens Automatically
Every 401(k) plan has a written definition of “eligible compensation” that controls which payments your deferral election applies to. Most plans define compensation broadly enough to include discretionary bonuses, performance incentives, and commissions.2Internal Revenue Service. 401(k) Plan Fix-It Guide – You Didn’t Use the Plan Definition of Compensation Correctly for All Deferrals and Allocations When a bonus falls inside that definition, your employer is required to apply your deferral percentage. Skipping it would be a plan administration error, not a courtesy.
The math surprises people because the dollar amounts are so much larger than a normal paycheck deduction. Six percent of a $2,000 biweekly check is $120. Six percent of a $30,000 bonus is $1,800 out of a single pay period. Same rate, very different sting.
How the Bonus Actually Gets Taxed
The IRS treats bonuses as “supplemental wages,” alongside commissions, overtime, and severance.3eCFR. 26 CFR 31.3402(g)-1 – Supplemental Wage Payments Most employers withhold federal income tax on supplemental wages at a flat 22% up to $1 million, and 37% above that.4Internal Revenue Service. Employer’s Tax Guide (Publication 15) Some use the aggregate method instead, lumping the bonus in with a regular paycheck and withholding as though you earned that combined amount every period; this often produces higher withholding.
A pre-tax 401(k) contribution reduces the bonus amount subject to income tax withholding. On a $20,000 bonus with a 10% deferral, income tax is withheld on $18,000 instead of $20,000. At the 22% flat rate, that trims $440 off the immediate hit while still moving money into your retirement account. State supplemental withholding, where it applies, works the same way.
FICA is a different story. Social Security and Medicare taxes apply to the full bonus amount regardless of what you defer; pre-tax contributions do not reduce FICA wages.5Internal Revenue Service. Retirement Plan FAQs Regarding Contributions – Are Retirement Plan Contributions Subject to Withholding for FICA, Medicare or Federal Income Tax? Social Security tax stops at the annual wage base, which is $184,500 for 2026;6Social Security Administration. What Is the Current Maximum Amount of Taxable Earnings for Social Security? Medicare’s 1.45% has no cap.
Roth deferrals behave differently on the paycheck. A Roth contribution comes out after both FICA and income tax, so a $3,000 Roth deferral from a bonus costs you the full $3,000 out of net pay with no immediate tax offset. The tradeoff is that qualified withdrawals in retirement come out tax-free.7Internal Revenue Service. Roth Account in Your Retirement Plan
The Front-Loading Trap and Your Employer Match
The biggest hidden risk of a large deferral off a bonus is hitting the $24,500 limit early in the year. Once you reach it, payroll stops all elective deferrals for the rest of the calendar year. That sounds fine until you look at how the employer match is calculated.
Many plans compute the match on a per-pay-period basis. A common formula is 50% of the first 6% you contribute each paycheck. If your deferrals shut off in September because a March bonus pushed you toward the ceiling, you get no match from October through December. Those matching dollars don’t come back.
Check for a True-Up Provision
Some plans include a true-up: a year-end reconciliation that recalculates your match based on total annual compensation and total annual deferrals rather than per-period figures. If the per-period math shorted you, the employer makes up the difference. Employees in plans with a true-up can front-load a bonus without losing match dollars.
If your plan has no true-up, you need to pace contributions so you’re still deferring something in every pay period through December. Take $24,500, subtract what you’ve already contributed, and divide the remainder by the pay periods left. That’s your maximum safe rate going forward. If the bonus would push you past that pace, drop your deferral percentage for the bonus period and raise it back afterward.
Whether your plan has a true-up is spelled out in the summary plan description, or you can ask your benefits administrator. This one detail can be worth thousands a year, and most employees never think to ask.
Changing Your Election Before the Bonus Is Paid
You aren’t stuck with your default deferral rate. Most plans allow election changes, often on a per-pay-period basis. The catch is timing. Federal regulations require your deferral election to be in place before the bonus becomes currently available to you.8eCFR. 26 CFR 1.401(k)-1 – Certain Cash or Deferred Arrangements If the bonus is paid on January 30, your election must be on file before January 30. You cannot receive the bonus and then decide retroactively to defer part of it.
Payroll processing deadlines typically fall several business days before the pay date, so submitting a change the day before the bonus is usually too late. Two common approaches:
- Lower your deferral to 0% for the bonus pay period if you want the cash, then reset it to your normal rate.
- Raise your deferral temporarily if you want to capture more of the bonus in your 401(k), sometimes up to whatever room remains under the $24,500 limit.
Many payroll systems will automatically cap the deduction at the annual limit, but confirm this rather than assume it.
If You Go Over the Annual Limit
If your total elective deferrals across all 401(k) plans exceed $24,500 for the year, the excess has to come back to you through a corrective distribution. The deadline is April 15 of the following year. Meet it and the excess is taxed once, in the year you contributed. Miss it and the IRS taxes the excess twice: once in the contribution year and again when it’s eventually distributed from the plan.9Internal Revenue Service. Consequences to a Participant Who Makes Excess Deferrals to a 401(k) Plan
The April 15 deadline is firm. A tax extension does not push it back. Earnings attributable to the excess must also be distributed and are taxable when distributed. A late corrective distribution can also trigger the 10% early-distribution penalty if you’re under 59½.10Internal Revenue Service. 401(k) Plan Fix-It Guide – Elective Deferrals Weren’t Limited to the Amounts Under IRC Section 402(g) for the Calendar Year and Excesses Weren’t Distributed
Over-contributions show up most often after a mid-year job change. Each employer’s payroll only tracks what you contributed at that company, so neither knows you’re approaching the combined limit. The IRS requires you to aggregate all elective deferrals across every plan you participated in that calendar year.11Internal Revenue Service. Retirement Topics – 401(k) and Profit-Sharing Plan Contribution Limits Tracking is on you. If you got a bonus at either employer, run the numbers before year-end.
If You’re 50 or Older
Catch-up contributions raise the ceiling. The standard 2026 catch-up is $8,000, bringing your total allowable deferral to $32,500. If you’re between 60 and 63, a SECURE 2.0 provision raises the catch-up to $11,250, for a total of $35,750.1Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 A bonus is one of the easiest ways to fill catch-up room if you’ve fallen behind, without cutting into regular take-home pay the rest of the year.
If You’re a Highly Compensated Employee
If you earned more than $160,000 from your employer in the prior year, the IRS classifies you as a highly compensated employee (HCE) for plan testing.12Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Cost-of-Living Your plan must pass annual non-discrimination tests comparing HCE deferral rates to everyone else’s. When HCEs funnel large bonuses into the plan, the gap can widen enough that the plan fails.13Internal Revenue Service. 401(k) Plan Fix-It Guide – The Plan Failed the 401(k) ADP and ACP Nondiscrimination Tests
The fix is a refund of excess contributions to HCEs. Those refunds are taxable in the year distributed, and any employer match tied to the refunded contributions is forfeited. If you’re an HCE thinking about a large bonus deferral, ask your plan administrator whether the plan has a safe harbor design or a projected HCE cap before you increase your rate.
One More Ceiling to Watch
Beyond the $24,500 employee deferral limit, there’s a separate cap on total contributions from all sources combined: your deferrals, employer matching, and employer profit-sharing. For 2026 this Section 415(c) limit is $72,000.14Internal Revenue Service. COLA Increases for Dollar Limitations on Benefits and Contributions Most employees won’t come near it, but a very large bonus paired with a generous match and profit-sharing can bring it into play. Employers generally monitor this on their end. After a job change, no one has full visibility but you.