How Are Bonuses Taxed?

How bonuses are taxed comes down to one IRS rule: a bonus counts as supplemental wages. The tax itself isn’t higher than your salary tax. Your employer withholds federal tax on a bonus at a flat 22%, then adds Social Security (6.2%), Medicare (1.45%), and any state income tax, which is the real reason the deposit lands below the figure your manager quoted.

Key takeaways

Supplemental wages cover bonuses, so employers withhold federal tax at 22% (37% above $1 million).
Withholding acts as an estimate. A bonus settles at your marginal rate at filing, so extra withholding comes back as a refund.
FICA and state tax add 6.2% Social Security, 1.45% Medicare, and 0% to 13.3% state tax.
Retirement contributions to a 401(k), HSA, or IRA lower the taxable amount of a bonus in the same year.

Bonuses are taxed as ordinary income at your marginal rate. The IRS calls them supplemental wages. The supplemental wages tax rules set a flat 22% federal withholding on a bonus, separate from your salary. That withholding isn’t your final bill. At filing the bonus joins your yearly income and settles at your real rate, so an over-withheld bonus returns money as a refund while an under-withheld one leaves a balance to pay. A holiday bonus, a signing bonus, and a year-end performance bonus all follow the same rule. Holiday bonus tax is identical to regular bonus tax, whether your employer calls the December payout a bonus holiday or a Christmas bonus.

What’s the bonus tax rate in 2026?

The federal bonus withholding rate is 22% up to $1 million and 37% above it in 2026. Bonus taxes come from four sources. The table below lists each rate and its 2026 limit.

Bonus tax rates, 2026
Bonus tax	2026 rate	Limit or threshold
Federal withholding	22%, then 37% above $1M	$1,000,000 per year
Social Security	6.2%	$184,500 wage base
Medicare	1.45%, plus 0.9% above $200,000	No cap
State income tax	0% to 13.3%	Set by each state

Nine states charge no income tax on bonuses: Texas, Florida, Nevada, Washington, Wyoming, South Dakota, Alaska, Tennessee, and New Hampshire. The 2026 Social Security wage base sits at $184,500, and the most any worker pays into Social Security this year is $11,439. Once your year-to-date pay passes that base, Social Security stops for the rest of the year, and a large bonus is often what tips you over the line.

Why is my bonus check smaller than I expected?

Your employer picks one of two federal withholding methods, then FICA and state tax come off the top. The method decides how much federal tax leaves first. Both are legal. Your pay stub shows which one ran.

The percentage method (flat 22%)

The percentage method withholds a flat 22% federal tax on a bonus paid as its own payment. A $5,000 separate bonus loses $1,100 to federal withholding before FICA and state tax touch it. Amounts above $1 million move to 37%, and the IRS requires this method past that point. The flat rate fits most employees. High earners in the 32% or 35% bracket usually owe more at filing, because 22% under-withholds their bonus.

The aggregate method

The aggregate method adds the bonus to a normal paycheck and withholds tax on the combined total using your W-4. The bigger paycheck can push withholding well above 22% for that period. It feels harsh in the moment. The trade-off works in your favour, though, because the aggregate method tracks your actual yearly tax more closely and cuts the odds of a surprise bill in April.

Are bonuses actually taxed higher than my salary?

No. Bonuses are taxed at the same rate as your salary, and only the upfront withholding runs higher. No separate bonus tax rate exists in the code. The 22% flat figure is a withholding estimate, not the tax. When you file, the IRS reconciles the bonus to your marginal rate. You get the excess back as a refund if 22% was too much, and you pay the gap if your bracket sits higher.

How much of your bonus do you actually keep?

A $10,000 bonus nets about $7,035 in a no-tax state and about $6,535 in a 5% state, under the 22% method in 2026. The math on a $10,000 separate bonus:

Federal withholding (22%): $2,200
Social Security (6.2%): $620
Medicare (1.45%): $145

Federal and FICA take $2,965. You keep $7,035 in a state with no income tax, such as Texas or Florida. A 5% state rate removes $500 more and leaves $6,535. The $620 Social Security line disappears if your earnings already passed $184,500 this year.

Your bracket, state, and 401(k) all change the result. Run your own number with the USA salary tax calculator, or check a no-income-tax state on the Texas paycheck calculator.

How can you reduce the tax on your bonus?

Four moves reduce or delay bonus tax: retirement contributions, HSA contributions, W-4 changes, and deferral.

Contribute the bonus to a 401(k), HSA, or traditional IRA, which lowers your taxable income for the year.
Adjust your W-4 so withholding matches your real liability.
Defer the bonus to a lower-income year if your employer allows it. Deferral doesn’t cut the tax; it moves the tax later, and a raise next year can make it cost more.
Confirm the payment is taxable, since small perks stay tax-free: holiday gifts, event tickets, low-value items.

Frequently asked questions

Are bonuses taxed at 22% or 40%?

The federal withholding rate is 22% up to $1 million. The 40% figure people quote adds Social Security, Medicare, and state tax on top of that 22%. It isn’t a single federal rate.

How do I avoid paying tax on a bonus?

You can’t avoid it, but you can shrink it. A 401(k), HSA, or IRA contribution cuts the taxable amount, and deferral pushes the tax into a later year.

Does a separate bonus check or a combined paycheck cost more?

Neither changes your final tax. A separate check withholds a flat 22%, while a combined paycheck often withholds more up front and refunds the difference later.

Do bonuses come back as a refund?

Often, yes. You get the excess back when you file your bonus tax return, if the 22% withholding was more than your marginal rate. You owe a little more if your bracket sits above 22%.

That’s how bonuses are taxed in 2026: bonuses stay taxable as supplemental wages, yet an accurate W-4 and pretax contributions protect your bonus take-home pay.

Sam Waltoman

US Tax & Payroll Specialist

Sam handles US federal and state income tax, FICA and self-employment tax for salaried employees, contractors and anyone filing across more than one state. He reviews the 2026 IRS brackets, standard deductions and FICA thresholds behind this site's USA salary tax calculator.

Read Sam’s full profile

Key takeaways