When your employer withholds federal income tax from a bonus, they choose between two IRS-approved approaches, and the difference between the flat rate and the aggregate method for bonus withholding is why the same $10,000 bonus can show wildly different amounts on two people’s paystubs. The flat method takes a straight 22% of the supplemental payment. The aggregate method rolls the bonus into your regular paycheck and calculates withholding on the combined total using the standard tables. Both are just estimates of what you might owe. Your actual tax is settled when you file your return.
The Flat 22% Method
Under the flat rate method, the employer applies a straight 22% federal income tax withholding to the gross supplemental payment. No tables, no bracket math, no reference to your W-4.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide A $10,000 bonus produces $2,200 in federal income tax withholding. A $50,000 commission produces $11,000. The percentage stays the same regardless of what you earn the rest of the year.
That simplicity is why most payroll departments prefer it for standalone bonus runs, commission checks, and other one-off supplemental payments. There’s no need to recalculate an employee’s annualized income or pull up their withholding elections. The IRS does not allow any other flat percentage under this method. It’s 22%, or you’re on the aggregate method.
The tradeoff is precision. If your marginal tax bracket is higher than 22%, the flat rate under-withholds and you’ll owe the difference at filing. If your effective rate is lower than 22%, it over-withholds and you’ll see it back as a refund.
The Aggregate Method
The aggregate method attempts to match withholding more closely to your actual tax situation by folding the bonus into your regular payroll and treating the combined amount as a single payment for a normal pay period.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide The calculation runs in four steps:
- Add the supplemental wages to the regular wages paid, or to be paid, for the current payroll period. If there are no concurrent regular wages, the employer uses the most recent regular payroll amount.
- Look up the withholding on that combined total using the standard IRS withholding tables, treating it as a single payment for a regular pay period.
- Subtract the tax already withheld, or to be withheld, from the regular wages alone.
- The remainder is the withholding on the supplemental portion.
If multiple supplemental payments hit during the same pay period, the employer aggregates all of them with the regular wages, figures the total tax, then subtracts what was already withheld from the regular wages and any earlier supplemental payments in that period.
The aggregate method often produces noticeably higher withholding than the flat rate. The calculation temporarily assumes you earn the inflated combined amount every pay period, which pushes your annualized income into a higher bracket. This is where most of the “the government took 40% of my bonus” reactions come from. The extra withholding isn’t lost. It comes back as a larger refund or smaller balance due when you file.
Which Method Your Employer Can Use
The key factor is not whether the bonus arrives in a separate check. It’s whether the supplemental wages are separately identified from regular wages in the payroll records.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
If the employer pays the supplemental wages separately, or combines them with regular wages in one payment but specifies the amount of each, the flat 22% rate is available. But there’s a condition: the employer must have withheld income tax from that employee’s regular wages in the current or immediately preceding calendar year. When that condition is met, the employer can choose either the flat rate or the aggregate method. When it isn’t met, as with a brand-new employee who hasn’t yet received a regular paycheck, the aggregate method is mandatory.
If the supplemental wages aren’t separately identified at all and are simply lumped into a single amount with no breakdown, the entire payment is treated as regular wages and withheld using the normal tables. Neither the flat rate nor the aggregate method formally applies in that scenario, because the payroll system never distinguishes the supplemental piece.
Why Withholding Isn’t Your Final Tax Bill
This is the single most misunderstood point about bonus taxation: the 22% flat rate is a withholding convenience, not a special tax rate on bonuses. Bonuses and other supplemental wages are ordinary income. They get added to your salary, investment income, and everything else on your return, then taxed at whatever marginal rate your total income lands in.
If your marginal rate is 24% or higher, the flat 22% withholding didn’t take enough, and you’ll owe the difference at filing. If your marginal rate is 12%, it took too much, and you’ll get a refund. The aggregate method follows the same logic. It’s an estimate based on a single pay period’s snapshot, not a final tax calculation.
If you receive a large bonus and worry about a surprise tax bill, you can submit an updated Form W-4 to increase withholding on your regular paychecks for the rest of the year, or make estimated tax payments directly to the IRS. The W-4 redesigned in 2020 no longer uses the old allowance system. It lets you enter additional dollar amounts of withholding, expected deductions, and other income, which gives more precise control over your total withholding.
Supplemental Wages Over $1 Million
Once your cumulative supplemental wages exceed $1 million from a single employer in a calendar year, the rules change sharply. Every dollar of supplemental pay above that line requires mandatory withholding at 37%, the highest individual income tax rate for 2026.2eCFR. 26 CFR 31.3402(g)-1 – Supplemental Wage Payments The employer cannot use your W-4 elections to reduce this withholding, and the flat 22% rate no longer applies to the excess.
The threshold applies per employer per calendar year, but “employer” is defined broadly. Companies that are part of the same controlled group or affiliated service group under Section 52 of the tax code are treated as a single employer for this purpose. Payments made through a third-party agent also count toward the total unless the agent paid less than $100,000 in total wages to that individual during the year.
What Comes Out on Top of Federal Income Tax
Federal income tax withholding is only part of the picture. Supplemental wages are also subject to Social Security and Medicare taxes, the same as regular pay. For 2026, both employee and employer pay 6.2% for Social Security on wages up to $184,500, and 1.45% each for Medicare on all wages with no cap.3Social Security Administration. Contribution and Benefit Base
If a bonus pushes your year-to-date earnings past the $184,500 Social Security wage base, the portion above that limit is exempt from the 6.2% Social Security tax. Medicare has no such ceiling. Once your total wages exceed $200,000 in a calendar year, the employer must begin withholding an additional 0.9% Medicare tax on the excess.4Internal Revenue Service. Topic No. 560, Additional Medicare Tax The actual filing thresholds for the Additional Medicare Tax vary by filing status ($250,000 for married filing jointly, $125,000 for married filing separately), but employers withhold at the flat $200,000 mark regardless. Any difference is reconciled on the return.
In concrete terms, a $10,000 bonus under the flat method doesn’t just lose $2,200 to federal income tax. It also loses $620 to Social Security, assuming you haven’t hit the wage base, and $145 to Medicare, bringing total federal withholding closer to $2,965 before state taxes.
State Withholding
Most states with an income tax impose their own withholding on supplemental wages, and the rules vary considerably. Some allow an optional flat rate similar to the federal approach, while others require the aggregate method or use their own calculation. State supplemental flat rates range roughly from about 1.5% to over 11%. A handful of states have no income tax at all, which eliminates this layer entirely. The federal 22% rate has no bearing on what a state requires. States set their own percentages and thresholds.