Taxes on your pay
Are bonuses taxed at a higher rate?
The most common misunderstanding in payroll: the number withheld from a bonus is not the tax on it.
The short answer
No - a bonus is taxed at your ordinary income tax rates, exactly like salary. What is different is withholding. Employers may treat bonuses as supplemental wages and withhold federal income tax at a flat 22% (37% on anything above $1 million in a year), whatever your actual bracket is. If your bracket is lower than 22% the excess comes back as a refund; if it is higher, you will owe the difference at filing time.
Withholding is a deposit, not the bill
Everything withheld from your pay during a year is a prepayment against one annual tax bill. The return adds up all your income - salary, bonus, interest, everything - applies the brackets once, and compares the result against what was prepaid. A bonus withheld at 22% by someone in the 12% bracket is simply over-prepaid, and the return hands it back.
What actually comes out of a bonus
| Bonus | Federal withholding at 22% | FICA at 7.65% | Left before state tax |
|---|---|---|---|
| $5,000 | $1,100 | $383 | $3,518 |
| $10,000 | $2,200 | $765 | $7,035 |
| $25,000 | $5,500 | $1,913 | $17,588 |
State income tax comes off on top of this, at anywhere from nothing to more than 10% depending on the state, and many states have their own flat supplemental rate.
For the state layer and a per-check figure, the paycheck calculator models any state, and there are dedicated bonus pages for each state with that state's own supplemental rate.
The two methods an employer can use
| Method | How it withholds | When employers use it |
|---|---|---|
| Flat rate (percentage method) | A straight 22% of the bonus for federal income tax, kept separate from the regular check | The default for a separate bonus payment, because it is simple and predictable |
| Aggregate method | Adds the bonus to the regular check and withholds on the combined amount using your W-4 | When the bonus is paid inside a normal paycheck, and for employers whose payroll cannot split payments |
| Mandatory 37% | Applies to supplemental wages above $1 million in a calendar year | Not optional - the employer must use it on the excess |
The aggregate method usually withholds more than the flat rate for a large bonus, because payroll annualizes the combined check as though you will earn that much every period. The over-withholding corrects itself on the return, but it is the reason a bonus included in a normal paycheck can look worse than one paid separately. The same annualizing effect explains why an unusually large check is taxed unusually hard.
Who gains and who loses from the flat rate
| Your top federal bracket | Withheld at 22% | Result on the return |
|---|---|---|
| 10% or 12% | Too much | Refunded - the bonus effectively over-prepaid your tax |
| 22% | About right | Roughly neutral |
| 24% | Not enough | You owe about 2% of the bonus |
| 32%, 35% or 37% | Well short | You owe 10 to 15% of the bonus unless you cover it another way |
2026 federal brackets. State tax is separate and may be withheld at its own flat supplemental rate.
If you are in the 24% bracket or above and expect a large bonus, the cleanest fix is line 4(c) of Form W-4: a flat extra amount per paycheck that covers the shortfall over the checks you have left. The W-4 calculator works out the figure from your income and the number of checks remaining.
Reducing the taxable amount
- Route part of it into a traditional 401(k) or HSA. Both cut taxable wages; the HSA also escapes FICA. Check whether your plan applies your regular contribution percentage to bonuses - many do, and some require a separate election.
- Ask about timing. A bonus paid in January rather than December lands in a different tax year. Employers rarely have flexibility here, but it is worth asking if your income is unusually high this year.
- Offset it. Charitable giving, deductible contributions and investment losses in the same year all reduce the income the bonus is stacked on top of.
What does not work: asking payroll to withhold less on the bonus itself. That changes when you pay, not what you owe, and leaves you covering it at filing time.
FAQ
Frequently asked questions
Are bonuses taxed at a higher rate than salary?+
No. Bonuses are taxed as ordinary income at exactly the same rates as your salary. What differs is withholding: employers may treat a bonus as supplemental wages and withhold federal income tax at a flat 22%, regardless of your bracket. If your real bracket is 12% you have over-withheld and get it back; if it is 24% or more you have under-withheld and will owe.
Why was my bonus taxed at 40%?+
Add the pieces up and it is rarely 40% of tax. A typical large bonus loses 22% federal withholding, 7.65% FICA and a state rate that can reach 10% or more, plus any 401(k) percentage that applies to bonuses. That can approach 40% withheld, but withholding is not tax. The federal part settles up on your return.
How can I pay less tax on a bonus?+
You cannot change the rate, but you can change the taxable amount and the timing. Directing part of the bonus into a traditional 401(k) or HSA reduces taxable wages; asking whether the payment can fall in a year when your income is lower can move it into a lower bracket; and charitable contributions in the same year offset it if you itemize. Adjusting Form W-4 does not reduce the tax, only when you pay it.
Is the 22% rate mandatory?+
No. An employer with a bonus of $1 million or less may use either the flat 22% rate or the aggregate method, which adds the bonus to your regular pay and withholds as though that combined amount were normal. Above $1 million, the excess must be withheld at 37%, and the employer has no choice.
Do bonuses pay Social Security and Medicare?+
Yes, at the ordinary rates - 6.2% Social Security until your wages reach the annual cap and 1.45% Medicare with no cap. The flat supplemental rate applies only to federal income tax; FICA is unaffected by it.
Does a bonus push me into a higher tax bracket?+
Only the part of your income above the bracket threshold is taxed at the higher rate, so a bonus never makes the rest of your income cost more. It can raise your marginal rate for the last slice, and it can affect income-tested items such as credit phase-outs, which is a separate effect from the bracket itself.
Sources
- IRS Publication 15, section 7: supplemental wages
- IRS Publication 15 (Circular E), employer's tax guide
- IRS Publication 15-T, Federal Income Tax Withholding Methods
- IRS, About Form W-4, Employee's Withholding Certificate
- IRS Rev. Proc. 2025-32 (2026 inflation adjustments)
General information for planning, not tax or legal advice. Federal figures are checked against the cited IRS, SSA and Department of Labor documents.
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