The tax on a bonus is the same as the tax on the rest of your income: bonuses are ordinary income, taxed at whatever federal bracket the money falls into when you file. What throws people off is withholding. Employers usually take a flat 22% of a bonus for federal income tax, plus Social Security and Medicare, so the check that lands in your account can look sharply smaller than the gross amount even though your actual tax rate has not changed.
Why Your Bonus Check Looks So Small
There is no separate bonus tax rate. When you file your return, bonus dollars stack on top of your salary and get taxed at the same graduated rates as everything else you earned. The gap you feel on payday is between two different things: withholding, which is a prepayment estimate your employer sends to the IRS during the year, and your actual tax, which is calculated on your return.
Regular paychecks are withheld using the W-4 you filled out, which accounts for filing status, dependents, and adjustments. Bonuses skip that personalization and use simplified rules built for one-off payments. Those rules can pull too much or too little, and the return sorts it out. Over-withholding comes back as a refund; under-withholding shows up as a balance due.
How the IRS Classifies Bonus Pay
The IRS treats bonuses as supplemental wages. That category also covers commissions, overtime, severance, back pay, awards, and payouts of accumulated sick leave.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide Signing bonuses paid when you start a new job fall in the same group. The label matters only because supplemental wages have their own withholding methods; the underlying tax you owe is the same either way.
The Two Federal Withholding Methods
Your employer picks the method. You generally cannot choose, but knowing both explains what you see on the pay stub.
The Flat 22% Method
This is the common one. The employer withholds a flat 22% for federal income tax, ignoring your W-4.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide The 22% rate holds as long as your supplemental wages for the year stay at or below $1 million. Anything above that line is withheld at 37%, matching the top federal bracket for 2026.2eCFR. 26 CFR 31.3402(g)-1 – Supplemental Wage Payments
If your marginal bracket is 22%, the flat rate roughly matches what you actually owe. In the 24%, 32%, or 35% brackets, 22% is not enough and you may owe at filing. In the 12% bracket, too much has been withheld and you can expect a refund.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
The Aggregate Method
Here the employer combines your bonus with your most recent regular paycheck, runs the total through the standard withholding tables in Publication 15-T as if it were a single paycheck, and then subtracts the tax already withheld on your regular wages. What’s left comes out of the bonus.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide Because the tables annualize that combined amount, the effective withholding rate can look punishing on a large bonus. As with the flat method, the return reconciles any overshoot.
Social Security and Medicare
Whichever income-tax method your employer uses, payroll taxes come out of every bonus dollar. That is 6.2% for Social Security and 1.45% for Medicare, the same as regular wages.4Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
Social Security has a wage ceiling. For 2026, the 6.2% tax applies only to the first $184,500 of combined wages and bonus pay.5Social Security Administration. Contribution and Benefit Base If your salary already crossed that number before the bonus arrived, no additional Social Security tax comes out of it. Medicare has no cap.
Higher earners face an Additional Medicare Tax of 0.9%. Employers must start withholding it once your wages for the year pass $200,000, regardless of filing status. The actual thresholds for owing the surtax are $200,000 for single filers and $250,000 for married couples filing jointly, so joint filers whose withholding kicked in at $200,000 reconcile any excess on their return.6Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
State and Local Withholding
Most states treat bonuses as taxable wages and require withholding. Some publish a flat supplemental rate, which ranges from roughly 1.5% to over 10% depending on the state. Others use the aggregate method or run bonuses through the same graduated tables they apply to regular wages. Nine states have no income tax, so bonuses earned there carry no state withholding.
Some cities and counties layer their own income taxes on top, and bonuses are rarely exempt. Between federal income tax, FICA, state tax, and local tax, 40% or more of a large bonus can disappear before it hits your account. The final bill on your return may end up lower than that combined withholding.
Non-Cash Bonuses and Gift Cards
A bonus paid as a gift card, trip, or product is still taxable. The employer includes the fair market value in your wages, reports it on your W-2, and withholds income and payroll taxes on it. Gift cards deserve a specific mention because they are often assumed to be small enough to ignore. The IRS says cash and cash equivalents, including gift cards and gift certificates, cannot qualify as a tax-free de minimis fringe benefit at any amount.7Internal Revenue Service. Employer’s Tax Guide to Fringe Benefits A $25 holiday gift card is taxable income.
Ways to Reduce What Gets Taxed
You cannot change the rate on bonus income, but you can shrink the amount that lands in your taxable wages for the year.
Route It Into Your 401(k)
If your employer lets you direct part of a bonus into a traditional 401(k), that money is excluded from taxable wages. The 2026 elective deferral limit is $24,500, with an extra $8,000 catch-up at age 50 and a super catch-up of $11,250 for workers ages 60 through 63 under the SECURE 2.0 Act.8Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 The deferral applies to income tax only. Social Security and Medicare still come out of the full bonus.
Contribute to an HSA
If you have a high-deductible health plan, an HSA contribution reduces your adjusted gross income. For 2026, the limits are $4,400 for self-only coverage and $8,750 for family coverage.9Internal Revenue Service. Notice 2026-05 – HSA Inflation Adjusted Amounts Contributions made outside payroll go on your return rather than being excluded from wages up front, but the tax savings comes out the same.
Shift the Bonus to Next Year
If next year’s bracket will be lower, ask about receiving the bonus in January instead of December. The rule that governs this is constructive receipt: income is taxable when it is made available to you, not when you cash the check.10Internal Revenue Service. Publication 525 (2025), Taxable and Nontaxable Income If the money has already been deposited or offered to you, deferral is off the table. The arrangement has to be in place before you have an unrestricted right to the payment.
What Happens When You File
At filing, everything you earned is added together and taxed on the graduated brackets. For 2026, federal rates for a single filer start at 10% on the first $12,400 of taxable income and top out at 37% above $640,600.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 If your total withholding beat your actual liability, you get the difference back. If it fell short, you write a check.
Avoiding an Underpayment Penalty
A big bonus with thin withholding can produce not just a balance due but a penalty. You are generally safe if you owe less than $1,000 at filing, or if your combined withholding and estimated payments covered at least 90% of this year’s tax or 100% of last year’s, whichever is smaller. If your prior-year adjusted gross income was over $150,000, the 100% figure rises to 110%.11Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
The cleanest fix after a large bonus is submitting an updated W-4 to raise withholding on your remaining paychecks for the year. If the bonus arrives too late for that to catch up, an estimated tax payment made directly to the IRS by the January 15 quarterly deadline closes the gap.