Bonuses are taxed as ordinary income under federal law, but the IRS treats them as “supplemental wages,” which triggers a separate set of withholding rules. That’s why how bonuses are taxed can look very different on your pay stub than it does on your tax return. Most employers withhold a flat 22% for federal income tax when a bonus is paid separately, plus Social Security and Medicare taxes. When you file, the bonus is folded into your total income and taxed at your regular bracket rates, and any difference between what was withheld and what you actually owe comes back as a refund or a balance due.
The Two Ways Employers Withhold on a Bonus
Employers pick between two methods for pulling federal income tax from a bonus. The method changes the size of the initial withholding, not the total tax you owe for the year.
The Flat 22% Method
When a bonus is paid on a separate check from your regular wages, your employer can withhold a flat 22% for federal income tax. No other flat percentage is allowed. That rate applies as long as your total supplemental wages for the calendar year stay at or below $1 million. Every dollar of supplemental wages above $1 million is withheld at 37%, regardless of what your W-4 says.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
The Aggregate Method
If your bonus is rolled into the same check as your regular pay and the two amounts are not broken out, your employer treats the combined check as a single regular paycheck. The employer runs the combined total through the standard tax tables using your W-4, then subtracts the tax that would have been withheld from your regular wages alone. The remainder is the tax pulled from the bonus portion.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
This method often withholds more than a flat 22%. The tables briefly treat your income as though every pay period looked like the inflated one, which can push the calculation into a higher bracket. If a bonus check comes back looking like it was taxed at 30% or more, the aggregate method is almost certainly the reason. The extra withholding is not lost. It comes back as a larger refund or a smaller balance due when you file.
Social Security and Medicare Also Come Out
Federal income tax is only one layer. Your bonus is also subject to FICA taxes. The employee share is 7.65%: a 6.2% Social Security tax and a 1.45% Medicare tax.2Social Security Administration. Social Security and Medicare Tax Rates
The Social Security portion only applies up to the annual wage base, which is $184,500 for 2026.3Internal Revenue Service. Topic no. 751, Social Security and Medicare Withholding Rates Once your cumulative wages hit that number, no more Social Security tax is withheld from any additional pay or bonuses. The 1.45% Medicare tax has no cap.
High earners face an additional 0.9% Medicare surtax on wages above $200,000 for single filers, $250,000 for married filing jointly, or $125,000 for married filing separately.4Internal Revenue Service. Topic no. 560, Additional Medicare Tax Employers are required to begin withholding the surtax once your wages pass $200,000, regardless of your filing status; joint filers reconcile the true threshold on Form 8959.5Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
What About Gift Cards and Signing Bonuses
The supplemental wage category is broader than most people expect. It covers performance bonuses, commissions, overtime pay, severance pay, signing bonuses, back pay, prizes, and awards.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
Signing bonuses are taxed exactly like any other bonus. The IRS treats amounts paid for signing or ratifying an employment contract as wages subject to income tax withholding, Social Security, and Medicare taxes. The same is true for severance pay.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
Gift cards count too. The IRS is explicit that cash and cash equivalents are never excludable from income, no matter how small the amount.6Internal Revenue Service. De Minimis Fringe Benefits A $25 coffee shop gift card at the holidays is technically taxable and should show up on your W-2. Small non-cash items like a holiday ham or flowers sent during an illness can qualify as de minimis fringe benefits and be excluded, provided the value is low and they aren’t handed out often. Tangible personal property given as a length-of-service or safety achievement award has its own exclusion: up to $400 per year, or $1,600 under a written plan. Those exclusions never apply to cash or gift cards.7Internal Revenue Service. Employer’s Tax Guide to Fringe Benefits (2026)
What You Actually Owe at Year-End
There is no special bonus tax rate. When you file Form 1040, your bonus is added to your salary and any other income, and the total runs through the ordinary income brackets for your filing status.
For 2026, the federal brackets for single filers are:8Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- 10% on income up to $12,400
- 12% on $12,401 to $50,400
- 22% on $50,401 to $105,700
- 24% on $105,701 to $201,775
- 32% on $201,776 to $256,225
- 35% on $256,226 to $640,600
- 37% on income over $640,600
A bonus can push part of your income into a higher bracket, but only the portion that lands in the higher bracket is taxed at the higher rate. Say your salary is $100,000 and you receive a $20,000 bonus. The first $5,700 of that bonus is taxed at 22%, and the remaining $14,300 is taxed at 24%. Nothing pulls your salary itself into a new bracket.
If the flat 22% withholding was more than your actual marginal rate on that money, the difference comes back as a refund. If your effective rate on the bonus income is higher than 22%, you owe the gap.
Ways to Reduce What You Owe
You can’t dodge tax on a bonus, but you can route some of the money into tax-advantaged accounts and lower your taxable income in the process. Setting this up before the bonus hits is what makes it work.
Boost Your 401(k) Deferral
If your plan allows it, raise your payroll deferral percentage before the bonus is paid so more of it goes directly into your 401(k). Contributions reduce your taxable income dollar for dollar. The employee contribution limit for 2026 is $24,500, with a catch-up of $8,000 for workers 50 and older, and a higher $11,250 catch-up for workers aged 60 through 63.9Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Deferrals have to go through payroll by December 31; you can’t drop money in after the year closes.
Fund an HSA
If you’re enrolled in a high-deductible health plan, contributions to a health savings account are deductible above the line. For 2026, the limits are $4,400 for self-only coverage and $8,750 for family coverage, plus a $1,000 catch-up at age 55 and older.10Internal Revenue Service. Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans Contributions made through payroll avoid both income tax and FICA taxes, so a dollar of bonus routed here stretches further than most other options.
Update Your W-4
If a bonus lands early in the year and your employer used the aggregate method, your later paychecks may end up over-withheld. Filing an updated W-4 can bring your remaining withholding back in line. If a bonus is instead under-withheld, you can use the same form to request extra withholding from remaining paychecks.
Watch Out for an Underpayment Penalty
A large bonus that’s under-withheld can trigger an underpayment penalty at filing, even if you pay the full balance by April 15. The IRS expects taxes to be paid throughout the year. You avoid the penalty by meeting one of these safe harbors:11Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
- Your total balance due after withholding and credits is under $1,000.
- Your withholding and estimated payments cover at least 90% of the current year’s tax.
- Your total payments equal or exceed 100% of last year’s tax, rising to 110% if your adjusted gross income was above $150,000.
If you get a large mid-year bonus and expect the withholding to fall short, you have two practical routes: submit a new W-4 asking for additional withholding from each remaining paycheck, or make a quarterly estimated payment using Form 1040-ES.12Internal Revenue Service. Large Gains, Lump Sum Distributions, Etc. The W-4 route is usually cleaner because withheld tax is treated as paid evenly across the year, which can cure a shortfall even if the adjustment comes late.
State Withholding
Most states with an income tax also withhold on supplemental wages. Some set a flat rate similar to the federal 22% method; others require standard state withholding tables. Flat rates on bonuses run roughly from 1.5% to over 11% depending on the state. Nine states have no state income tax, so a bonus earned there skips this layer, and some cities and counties add local income taxes of their own. Check your state’s withholding guidance or your pay stub to see the rate that was applied; as at the federal level, the state number is only an estimate until you file.