When your employer pays you a bonus, federal income tax is most often withheld at a flat 22%, and Social Security, Medicare, and state income taxes come out on top of that. So the honest answer to how a bonus is taxed is that roughly 30% typically disappears before the money reaches your account, and the final tax you actually owe on that bonus is settled when you file your return. The 22% figure is a withholding rate the IRS sets for “supplemental wages,” not a special tax rate that applies to bonuses.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
Why Bonuses Are Withheld Differently
The IRS classifies bonuses as supplemental wages, meaning wages paid outside your regular salary or hourly pay. The same category covers commissions, overtime, back pay, severance, third-party sick pay, noncash fringe benefits, nonqualified deferred compensation, and income from exercising nonstatutory stock options.2eCFR. 26 CFR 31.3402(g)-1 – Supplemental Wage Payments The label your employer uses doesn’t matter. A signing bonus, a referral bonus, a performance incentive, and accumulated sick leave paid out at separation are all supplemental wages.
Because supplemental wages don’t fit neatly into the withholding tables built around regular pay periods, the IRS gives employers two ways to handle federal income tax on them: the flat rate method and the aggregate method.
The 22% Flat Rate
The flat rate is the most common approach and the simplest. Your employer multiplies the bonus by 22% and sends that amount to the IRS as federal income tax withholding. No W-4 lookup, no bracket math.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
An employer can use this method when the bonus is separately identified from regular wages and when income tax has been withheld from your regular paychecks at some point in the current or prior calendar year. If both conditions are met, the employer can pick the flat rate.
The important thing to understand about the 22% is that it’s a withholding rate, not a tax rate. It’s a rough estimate of what you’ll owe on that money, collected up front. Your real federal tax on the bonus depends on your total income for the year and which of the ordinary brackets that income falls into. For 2026, individual brackets run from 10% to 37%.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 If your marginal rate is 12%, the flat 22% over-withholds and you’ll get the difference back as a refund. If your marginal rate is 32% or 35%, the flat 22% doesn’t cover what you actually owe, and you’ll be writing a check in April.
The Aggregate Method
The alternative is the aggregate method. Your employer adds the bonus to your regular wages for the pay period, treats the combined amount as a single paycheck, looks it up in the withholding tables using your W-4, calculates the total tax on that inflated figure, then subtracts what was already withheld from your regular wages. Whatever’s left is the withholding on the bonus.
This almost always withholds more than 22%. The tables assume you earn the combined amount every pay period. A $5,000 bonus added to a $3,000 biweekly check makes the tables read $8,000 every two weeks, or about $208,000 annualized, and withhold as if you were in that bracket year-round.
Employers generally fall back on the aggregate method when the bonus isn’t separately identified from regular pay on the check. Many employers who could use either method prefer the flat 22% because it’s easier to run and easier for employees to predict.
Bonuses Over $1 Million
If your total supplemental wages from one employer cross $1 million during the calendar year, the rules stop being flexible. Every dollar above the $1 million mark must be withheld at 37%, the top marginal rate. Your employer cannot use the flat 22% or the aggregate method on the excess, and your W-4 doesn’t change the result.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
The threshold looks at cumulative supplemental wages from a single employer (including businesses under common control) across the year. If $800,000 in commissions arrive by November and a $400,000 bonus is paid in December, the first $200,000 of that bonus can still be withheld at 22%; the last $200,000, which pushes you past $1 million, must be withheld at 37%.
Social Security and Medicare Also Come Out
The 22% covers federal income tax only. Payroll taxes still apply.
Social Security is 6.2% of the bonus, up to the annual wage base. In 2026, once your combined regular and supplemental wages for the year hit $184,500, no more Social Security tax comes out.4Social Security Administration. Contribution and Benefit Base If your salary alone already exceeds that cap by the time the bonus is paid, no Social Security tax is withheld from the bonus at all.
Medicare is 1.45% with no cap. Every dollar is subject to it.4Social Security Administration. Contribution and Benefit Base On top of that, once your wages from a single employer pass $200,000 in the calendar year, an Additional Medicare Tax of 0.9% is withheld on the excess, regardless of your filing status.5Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
Put it together on a $10,000 bonus, assuming you’re still under the Social Security cap and haven’t triggered the Additional Medicare Tax: $2,200 in federal income tax, $620 in Social Security, and $145 in Medicare. That’s $2,965 before any state tax touches it, or nearly 30% of the bonus.
State Income Tax Adds More
State treatment varies and is independent of the federal approach. States with no income tax withhold nothing. Among states that do tax wages, some mirror the federal rules and let employers choose between a flat rate and the aggregate method, some set their own supplemental flat rate, and some require the aggregate method only. State supplemental flat rates run from roughly 1.5% to over 11%. Two workers receiving the same bonus in different states can see noticeably different net amounts. Your pay stub or your state’s employer withholding guide will show which approach was used.
Non-Cash Bonuses and Gift Cards
A bonus doesn’t have to be cash to be taxed. Prizes, electronics, vacation packages, and gift cards are treated as supplemental wages at their fair market value.
Gift cards are the common trap. Cash and cash equivalents are never excludable from income, no matter how small. A $25 Visa gift card from your employer at the holidays is technically taxable income and should be added to your wages. Tangible items (not cash equivalents) can sometimes qualify as de minimis fringe benefits if they’re low value, given infrequently, and impractical to track, but the IRS has indicated items worth more than $100 generally don’t qualify, and the $100 figure isn’t a safe harbor: if a benefit is too large to be de minimis, the entire value is taxable, not just the amount over the line.6Internal Revenue Service. De Minimis Fringe Benefits
Which Tax Year the Bonus Belongs To
A bonus is taxed in the year you actually or constructively receive it, not the year you earned it. A bonus based on 2025 performance but paid in February 2026 is 2026 income and shows up on your 2026 W-2.
Constructive receipt can pull the timing forward. Income is constructively received when it’s credited to your account or set aside so you could draw on it, even if you haven’t moved it. A bonus deposited on December 30 is December income even if you didn’t touch it until January. But if your employer’s normal practice is to mail bonus checks that arrive in January, the IRS has said those aren’t constructively received in December.7eCFR. 26 CFR 1.451-2 – Constructive Receipt of Income The distinction matters when a bonus straddles year-end and you expect to be in a different bracket the following year.
What Happens When You File
Everything withheld from your bonus lands in the same buckets on your W-2 as everything withheld from your regular paychecks. All federal income tax withholding sits together in Box 2 and is credited against your total tax liability when you file Form 1040. If withholding exceeded what you owe, you get a refund. If it fell short, you owe the difference.
The 22% flat rate is a blunt instrument. For someone in the 12% bracket, it substantially over-withholds and inflates the refund. For someone in the 32% or 35% bracket, it under-withholds by 10 to 13 percentage points on federal income tax alone. A $50,000 bonus under-withheld by 10 points means roughly $5,000 more owed in April.
Adjusting Withholding Before a Known Bonus
If you know a large bonus is coming and you’re in a higher bracket, you can file a new Form W-4 ahead of time. Step 4(c) lets you request extra withholding per pay period on top of what the tables produce.8Internal Revenue Service. Employee’s Withholding Certificate File another W-4 after the bonus to bring your withholding back down, or your regular paychecks will keep over-withholding for the rest of the year.
The Safe Harbor Against Underpayment Penalties
If under-withholding leaves you owing more than $1,000 at filing, the IRS can charge an underpayment penalty. You avoid the penalty if you paid at least 90% of the current year’s tax or 100% of the prior year’s tax, whichever is less. If your prior-year adjusted gross income was above $150,000 ($75,000 if married filing separately), the prior-year figure rises to 110%.9Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty Instead of adjusting your W-4, you can also make a quarterly estimated payment directly to the IRS to cover the shortfall; for safe-harbor purposes, estimated payments count the same as payroll withholding.