Bonus Tax Explained: Why Your Bonus Feels Smaller Than Expected
You were promised a $5,000 bonus. Your paycheck shows a lot less than $5,000 extra. You haven't been shortchanged — bonuses are simply taxed under different rules than your regular salary.
In this guide:
- Why Bonuses Are Taxed Differently
- The Percentage Method (Flat 22%)
- The Aggregate Method
- FICA on Bonuses
- Is 22% Your Final Tax Rate?
- How to Keep More of Your Bonus
- What you keep from common bonus amounts
- How the aggregate method can withhold more
- Bonuses above $1 million
- Social Security stops at the wage base
- Putting part of a bonus into your 401(k)
- Gift cards, prizes and other non-cash bonuses
- Bonuses and the new tip and overtime deductions
- If you have to repay a bonus
- Bonus or raise: which is worth more?
- December or January: does timing matter?
- Commissions and other supplemental wages
- How to check your bonus withholding on the stub
- Bonuses and your tax refund
- Planning ahead for a known bonus
- Frequently Asked Questions
1. Why Bonuses Are Taxed Differently
The IRS classifies bonuses, commissions, severance pay, and similar one-time payments as supplemental wages, separate from your "regular" salary or hourly pay. Supplemental wages have their own withholding rules specifically because they're irregular.
2. The Percentage Method (Flat 22%)
For a bonus paid separately from your regular paycheck, employers typically use the percentage method: a flat 22% federal withholding rate, regardless of your actual tax bracket. If your total supplemental wages for the year exceed $1 million, the rate jumps to 37% on the amount above that threshold.
This flat rate is why a bonus can feel disproportionately taxed if your regular salary puts you in a lower bracket.
3. The Aggregate Method
Less commonly, employers use the aggregate method: your bonus is added to your most recent (or next) regular paycheck, and withholding is calculated on the combined total using standard payroll tax tables. Because tax brackets are progressive, this can temporarily push part of that combined paycheck into a higher withholding bracket.
4. FICA on Bonuses
Beyond federal income tax withholding, your bonus is also subject to the same FICA taxes as regular wages: 6.2% Social Security (until you hit the annual wage base of $184,500) and 1.45% Medicare.
5. Is 22% Your Final Tax Rate?
No. The 22% withheld is not your final tax rate on the bonus, it's just what gets withheld now. Your bonus is ultimately taxed as ordinary income when you file your tax return, at your real marginal rate based on your total annual income.
- If your marginal tax rate is higher than 22%, you may owe additional tax on the bonus when you file.
- If your marginal tax rate is lower than 22%, you likely overpaid and will get some of that back as part of your refund.
6. How to Keep More of Your Bonus
- Increase pre-tax 401(k) contributions for the pay period your bonus lands in.
- Contribute to an HSA if you have a high-deductible health plan.
- Ask about deferring the bonus into the next calendar year if the timing genuinely helps.
- Adjust your W-4 afterward if the bonus consistently causes you to owe — see our W-4 guide.
7. What you keep from common bonus amounts
With the 22% flat federal rate and 7.65% for Social Security and Medicare, here is what reaches you before any state tax:
| Bonus | Federal withholding (22%) | Social Security + Medicare | Before state tax | Share kept |
|---|---|---|---|---|
| $1,000 | $220 | $76.50 | $704 | 70.3% |
| $2,500 | $550 | $191.25 | $1,759 | 70.3% |
| $5,000 | $1,100 | $382.50 | $3,518 | 70.3% |
| $10,000 | $2,200 | $765.00 | $7,035 | 70.3% |
| $25,000 | $5,500 | $1,912.50 | $17,588 | 70.3% |
State income tax comes out as well. Many states also use a flat supplemental rate for bonuses; California, for example, withholds 10.23% on bonuses. In the nine states without a wage income tax, the figures above are what you receive. The bonus tax calculator adds your state.
8. How the aggregate method can withhold more
When a bonus is paid in the same check as regular wages and the employer uses the aggregate method, payroll treats the combined check as if you earned that much every pay period. For a single filer paid $2,000 every two weeks who receives a $5,000 bonus in the same check, the payroll system annualizes $7,000 to about $182,000 a year and withholds as if that were the salary. The extra federal withholding on the bonus works out to roughly $1,091, or 22% of the bonus, compared with $1,100 at the flat 22% rate. Neither number is your final tax; any difference is settled when you file your return.
9. Bonuses above $1 million
Once your supplemental wages from an employer pass $1 million in a calendar year, federal withholding on the amount above $1 million is mandatory at 37%, the top income tax rate, regardless of your W-4. Executives with large bonuses, stock vesting or severance often see this rate. As with the 22% rate, it is only withholding; your actual tax depends on your total income and deductions.
10. Social Security stops at the wage base
Social Security tax of 6.2% applies only to the first $184,500 of wages in 2026. If a bonus pushes your year-to-date wages past that amount, the part above it has no Social Security tax, so a December bonus can be noticeably larger than a similar bonus earlier in the year. Medicare has no cap, and an extra 0.9% Additional Medicare Tax is withheld on wages above $200,000.
11. Putting part of a bonus into your 401(k)
Whether you can defer a bonus into your 401(k) depends on your plan's definition of compensation. Many plans apply your regular contribution percentage to bonuses automatically; some exclude bonuses; some let you choose a separate bonus deferral rate. A traditional 401(k) deferral reduces federal and usually state income tax withholding on the bonus but not Social Security and Medicare. Check your plan's election options a few weeks before bonus season, because changes often need a payroll cycle to take effect.
12. Gift cards, prizes and other non-cash bonuses
Cash equivalents such as gift cards are always taxable wages, even small ones. Non-cash prizes, such as a trip or an electronics award, are generally taxed at their fair market value, often with withholding taken from a regular paycheck. Small, occasional items like a holiday ham or a company T-shirt can be excluded as de minimis fringe benefits. A recognition award of tangible property for length of service or safety may be excludable within limits, but not cash or gift cards.
13. Bonuses and the new tip and overtime deductions
The federal deductions for qualified tips and overtime pay that started in 2025 do not cover bonuses. A performance, retention or sign-on bonus remains fully taxable wages even if you also earn overtime. Only the premium portion of overtime required by the Fair Labor Standards Act and qualified cash tips in eligible occupations count toward those deductions.
14. If you have to repay a bonus
Sign-on and retention bonuses often have to be repaid if you leave early. If you repay it in the same year you received it, your employer can correct your wages, and you should not owe tax on it. If you repay it in a later year, you generally claim a deduction or credit on your return for that year under the claim of right rules, which can be complicated for amounts over $3,000. Keep the repayment agreement and proof of payment.
15. Bonus or raise: which is worth more?
Over a full year, a raise and a bonus of the same size are taxed the same way, because both are wages. The differences are timing and permanence. A $10,000 raise for a single filer earning $100,000 adds about $7,035 of take-home pay a year in today's federal tax and FICA, and it is built into future raises, 401(k) matches and sometimes life insurance coverage. A $10,000 bonus delivers a similar amount after tax once, but more is withheld up front at 22% plus FICA. When you have a choice, a raise usually has more lasting value; a bonus can be better if you need a lump sum or expect to leave within the year.
16. December or January: does timing matter?
A bonus paid on December 31 counts in this year's income; one paid on January 2 counts in next year's. Shifting a bonus can help if your income will be lower next year, for example because of a planned leave, or if this year's income is near the threshold of a phase-out, such as the overtime deduction or Child Tax Credit limits. For most people with steady income the difference is small. Employers usually set the payment date, and you generally cannot defer a bonus you have already earned and become entitled to, so ask before it is scheduled.
17. Commissions and other supplemental wages
The same withholding rules cover commissions, overtime paid separately from regular wages, severance, back pay, awards and prizes, and payment for unused vacation. If your employer pays commissions in a separate check, expect the flat 22% federal rate. If commissions are a large share of your pay, withholding can swing from check to check, so compare your year-to-date withholding with your expected tax in the fall and adjust your W-4 if needed.
18. How to check your bonus withholding on the stub
Look for the bonus as a separate earnings line, often labeled BON or SUPP. If it was paid in its own check, federal withholding should be close to 22% of the bonus. If it was combined with regular pay, look at the total federal withholding for the check and compare it with your usual amount; the difference is the withholding on the bonus. Social Security should be 6.2% of the bonus unless you passed the $184,500 wage base, and Medicare 1.45%. If the numbers look far off, ask payroll which method was used.
19. Bonuses and your tax refund
Whether bonus withholding was too high or too low depends on your full-year tax. For a single filer whose top income falls in the 12% bracket, 22% withholding on a bonus is more than the tax due, so part of it comes back as a refund. For someone in the 24% bracket or higher, 22% is slightly too little, and a large bonus can leave a small balance due. If you expect a big bonus and are in a high bracket, add extra withholding through Step 4(c) of your W-4 for the rest of the year.
20. Planning ahead for a known bonus
If you know a large bonus is coming, a little planning helps. Raise your 401(k) percentage for that paycheck if your plan applies it to bonuses. Set aside part of the bonus for any tax still due if you are in the 24% bracket or above. Decide in advance what the money will do, such as an emergency fund, debt payoff or a specific goal, so it does not disappear into everyday spending. And check whether the bonus pushes your income past a threshold for credits or deductions you rely on.
Frequently Asked Questions
Why is my bonus taxed at 22%?
22% is the flat federal withholding rate for supplemental wages up to $1 million. It is withholding, not your final tax rate.
Is a bonus taxed more than regular pay?
Not in the end. Bonuses are added to your income and taxed at the same rates as salary; only the withholding method differs.
How much will I keep from a $5,000 bonus?
About $3,517 before state tax: $1,100 federal withholding and $382.50 for Social Security and Medicare.
Will I get bonus tax back in my refund?
If your actual tax rate is below what was withheld, the difference comes back as part of your refund.
Is commission taxed like a bonus?
Yes. Commissions are supplemental wages and are often withheld at the same flat 22% federal rate when paid separately.
Can I avoid tax on my bonus?
Not legally, but deferring part into a traditional 401(k), if your plan allows, reduces income tax on that part.
Is a retention bonus taxed differently from a performance bonus?
No. Both are supplemental wages with the same withholding and tax treatment.
Are bonuses taxed in the state where I live or work?
Usually the state where you earned the bonus, which is normally where you work; residents of some states also owe tax there with a credit for tax paid elsewhere.
Does a bonus count toward the Social Security wage base?
Yes. Bonuses are wages, so they count toward the $184,500 limit for 2026.
Can my employer withhold more than 22% on a bonus?
Yes. If the bonus is combined with regular pay and the aggregate method is used, withholding can be higher; over $1 million it is 37%.
Is a holiday bonus taxable?
Yes. Cash and gift-card holiday bonuses are wages and are taxed like any other bonus.
This article is for general education only and is not tax, legal or investment advice. Figures and rules change; confirm details with the IRS or a qualified professional before making decisions.