Bonuses are taxed as ordinary income, the same way your salary is. What throws people off is the withholding: when your employer pays a bonus separately, the IRS lets them pull federal income tax out at a flat 22%, which can look like a punishing rate on the pay stub. It isn’t a special bonus tax. It’s a prepayment. Your actual tax on the bonus is settled when you file your return, based on your total income for the year and the bracket you land in.
Withholding Is Not Your Final Tax Rate
A bonus gets added to everything else you earned during the year, and the whole amount is taxed using the same federal brackets that apply to wages and salary. For 2026 those brackets run from 10% to 37%, depending on filing status and taxable income.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
The withholding step is separate. Your employer has to send something to the IRS the moment the bonus is paid, and the method used to calculate that prepayment can make the deduction look severe. When you file the following spring, the IRS calculates what you actually owe on your full-year income. Overpaid withholding comes back as a refund. Underpaid withholding shows up as a balance due.
The Flat 22% Method
When your employer pays the bonus as a separate check and labels it supplemental wages, the simplest option is a flat 22% federal income tax withholding.2Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide – Section: 7. Supplemental Wages No other flat percentage is allowed. Your W-4, filing status, and regular salary aren’t factored in. Every dollar of the bonus is reduced by 22% for federal purposes.
For a lot of employees, that’s close to their real tax rate. If your marginal bracket is 12%, the difference comes back at tax time. If you’re in the 24% or 32% bracket, you may owe a bit more when you file.
The Aggregate Method
Your employer can instead combine the bonus with your regular wages for the pay period, run the total through the standard withholding tables as if it were one paycheck, and subtract what would have been withheld on the regular wages alone.2Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide – Section: 7. Supplemental Wages The leftover becomes the bonus withholding.
This often takes a bigger bite. Piling the bonus on top of a normal paycheck pushes the calculation into a higher period bracket, so the effective withholding rate on that bonus can land well above 22%. It’s still just an estimate. The same reconciliation happens on your return.
Who Picks the Method?
The employer does. You can’t tell payroll which one to use. If the bonus is lumped into the same payment as regular wages without being separately identified, the aggregate method is required by default. What you can do is adjust your W-4 to raise or lower withholding on future paychecks to even things out.3Internal Revenue Service. Tax Withholding Estimator FAQs
Social Security and Medicare Come Out Too
On top of federal income tax withholding, your employer takes Social Security and Medicare (FICA) out of the bonus just like a regular paycheck.2Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide – Section: 7. Supplemental Wages
- Social Security is 6.2%, applied to earnings up to the 2026 wage base of $184,500. Once your combined pay for the year crosses that cap, no more Social Security tax comes out.4Social Security Administration. Contribution and Benefit Base
- Medicare is 1.45% on every dollar, with no cap.5Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
- An Additional Medicare Tax of 0.9% kicks in once your year-to-date wages exceed $200,000. Your employer starts withholding it automatically once you cross that mark.5Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
Your employer pays a matching 6.2% and 1.45% out of its own pocket. The 0.9% surtax has no employer match.
Bonuses Above $1 Million
Once your total supplemental wages from one employer pass $1 million in a calendar year, everything above that threshold is withheld at 37%, the top individual rate.2Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide – Section: 7. Supplemental Wages The first $1 million is still withheld at 22% or by the aggregate method. Only the excess triggers the higher rate, and the $1 million count is cumulative for the year, not per payment.6eCFR. 26 CFR 31.3402(g)-1 – Supplemental Wage Payments
Non-Cash Bonuses and Gift Cards
A bonus doesn’t have to be cash to be taxable. If your employer hands you a vacation, electronics, merchandise, or a gift card, the fair market value counts as wages and belongs on your W-2, with withholding applied the same way.7eCFR. 26 CFR 1.74-1 – Prizes and Awards
There’s a narrow carve-out for items too small to bother tracking, called de minimis fringe benefits: the holiday fruit basket, occasional flowers, a branded mug. Those aren’t taxable. Cash and cash equivalents are never de minimis, no matter how small.8Internal Revenue Service. Employer’s Tax Guide to Fringe Benefits (Publication 15-B) A $25 gift card is taxable. A $25 box of chocolates generally isn’t.
Cutting the Tax Hit With a 401(k)
If your employer’s plan permits it, routing part of the bonus into a traditional 401(k) is one of the cleanest ways to reduce the federal income tax withheld. Elective deferrals to a traditional 401(k) aren’t subject to federal income tax at the time of deferral, which trims the taxable portion of the bonus.9Internal Revenue Service. 401(k) Plan Overview Social Security and Medicare still apply to the full amount.
For 2026 the elective deferral limit is $24,500. Add $8,000 in catch-up contributions if you’re 50 or older, or $11,250 if you’re between 60 and 63.10Internal Revenue Service. Retirement Topics – 401(k) and Profit-Sharing Plan Contribution Limits Check whether your plan automatically applies your deferral percentage to bonus checks. Some do; others require a separate election for supplemental pay.
State and Local Withholding
Most states with an income tax let employers withhold from bonuses at a flat supplemental rate, similar to the federal setup. Those flat rates run roughly from 1.5% to over 11%. Some states require the same progressive tables used on regular wages. Nine states have no income tax at all, so residents there see no state withholding on a bonus.
Certain cities and municipalities add local income or occupational taxes on top. Between federal, state, and local withholding, take-home from an identical bonus can differ significantly based on where you live and work.
When the Bonus Counts
A bonus is taxed in the year you receive it or have unrestricted access to it, not necessarily the year you earned it. Under the constructive receipt rule, income counts in the year it’s credited to your account, set apart for you, or otherwise made available to draw on.11eCFR. 26 CFR 1.451-2 – Constructive Receipt of Income
If your employer announces a bonus in December 2026 but doesn’t make the money available until January 2027, it usually lands in your 2027 tax year. If the deposit hits in December 2026, it’s 2026 income even if you don’t spend a dollar of it. Shifting a large bonus across the year-end line can change which bracket some of those dollars fall into.
What Happens at Tax Time
Your total wages, regular pay plus bonuses, show up in Box 1 of your W-2, with federal, state, and local withholding in their respective boxes. When you file your Form 1040, the IRS figures your actual liability from full-year income, filing status, deductions, and credits. If withholding was too high, you get a refund. If a bonus pushed you into a higher bracket than payroll estimated, you may owe.
Avoiding an Underpayment Penalty
Coming up short on withholding can trigger an underpayment penalty. You generally avoid it if total withholding and estimated payments cover at least 90% of your current-year tax or 100% of your prior-year tax (110% if your prior-year adjusted gross income was over $150,000).12Internal Revenue Service. Estimated Tax You also avoid it if the balance due at filing is under $1,000.
If you’re expecting a bonus large enough to leave you underwithheld, run the IRS Tax Withholding Estimator and use line 4(c) on your W-4 to add extra withholding on the paychecks you have left in the year.3Internal Revenue Service. Tax Withholding Estimator FAQs A quarterly estimated tax payment works too.