No, bonuses are not taxed at a higher rate than your regular paycheck. The IRS treats a bonus as ordinary income, so it lands in the same federal tax brackets as your salary. What changes is how much your employer withholds, and that is why a bonus check often looks smaller than you expected.
Employers usually withhold a flat 22% of a bonus for federal income tax, then add Social Security, Medicare, and any state tax on top. For many workers, 22% is more than they will actually owe, and the difference comes back at tax time.
The Short Answer: Taxed the Same, Withheld Differently
Your bonus and your salary are both “wages” in the eyes of the IRS. Both count toward your total taxable income for the year, and the final tax bill is based on that total. A $5,000 bonus does not get its own tax rate.
The confusion comes from withholding, which is only a prepayment toward your final bill. Withholding on regular pay is calculated from your Form W-4 and the IRS tables, and it tends to track your real tax closely. Bonuses are “supplemental wages,” and the IRS has separate withholding rules for them.
That difference in method creates a gap between what was withheld and what you owe. Sometimes the gap works in your favor, and sometimes it does not, which the sections below explain.
How Federal Bonus Withholding Works
The IRS describes supplemental wage withholding in Publication 15 (Employer’s Tax Guide) and Publication 15-T. Your employer picks one of two methods, and you generally cannot choose between them.
1. The Flat Percentage Method
Under the flat method, the employer withholds 22% from the bonus for federal income tax. This applies to supplemental wages up to $1 million in a calendar year. It is the most common approach because it is simple to run through payroll.
The 22% figure does not depend on your W-4 or your salary. A worker earning $40,000 and a worker earning $140,000 both see 22% taken from a bonus under this method.
For someone in the 10% or 12% bracket, this over-withholds. For someone in the 24% bracket or higher, it under-withholds.
2. The Aggregate Method
Under the aggregate method, the employer adds the bonus to your regular pay for that pay period and treats the total as a single paycheck. Federal withholding is then calculated on the combined amount, and the tax already withheld on the regular pay is subtracted.
Because payroll systems annualize each paycheck, a large bonus can make that one paycheck look like a very high-income period. The result is often a bigger withholding bite than the flat method would produce.
The aggregate method does not change what you owe for the year. It only changes how much is held back at that moment, and any excess is still credited when you file.
3. When the Rate Jumps to 37%
Once an employee’s supplemental wages pass $1 million in a calendar year, the excess must be withheld at 37%, the top federal rate. This is mandatory, not optional, and it applies to the portion above $1 million only. Most workers will never reach it, but it matters for executives and anyone with large stock-related payouts.
Payroll Taxes Come Out of Bonuses Too
Federal income tax is only one slice. Bonuses are also subject to FICA taxes, the same as your regular wages.
Social Security tax is 6.2% of wages up to the annual wage base, which is $184,500 for 2026 according to the Social Security Administration. Medicare tax is 1.45% with no cap. If your wages pass $200,000, your employer must also withhold an Additional Medicare Tax of 0.9% on the amount above that threshold.
For most employees, that means 7.65% comes off the bonus for FICA. If you have already earned more than $184,500 this year, the Social Security portion stops, and the bonus is hit only by Medicare.
Here is a quick view of what typically comes out of a bonus:
| Tax | Typical Rate on a Bonus |
| Federal income tax (flat method) | 22% |
| Social Security | 6.2% (up to the annual wage base) |
| Medicare | 1.45% |
| State income tax | 0% to about 12%, depending on the state |
A Real Example With Real Numbers
Say you are single, earn $60,000 a year, and receive a $5,000 bonus in 2026. The 2026 standard deduction for a single filer is $16,100, which puts your taxable income near $43,900 before the bonus and $48,900 after it. Both figures sit inside the 12% bracket, which runs up to $50,400 for single filers in 2026.
Your employer withholds 22% of $5,000, which is $1,100, plus $382.50 for FICA. Before state tax, you take home about $3,517.50. Your actual federal income tax on that bonus is 12%, or $600, so you were over-withheld by $500. That $500 returns as part of your refund if the rest of your withholding was accurate.
Now raise the bonus to $15,000. Your taxable income becomes about $58,900. The first $6,500 of the bonus fills the rest of your 12% bracket, costing $780, and the remaining $8,500 is taxed at 22%, costing $1,870.
Your real federal tax on the bonus is $2,650. The flat method withheld $3,300, so you were still over-withheld by $650.
The picture flips for higher earners. Suppose you earn $150,000 and get a $10,000 bonus. Your marginal rate is 24%, but the flat method withholds only 22%, so you are short about $200 on that bonus. That shortfall shows up as a smaller refund or a balance due.
State and Local Taxes on Bonuses
State rules add another layer, and they vary a lot. Texas, Florida, Washington, and several other states do not tax wages, so no state income tax comes out of your bonus there.
Other states set their own flat supplemental rate. California, for example, withholds 10.23% on bonuses, and New York uses 11.7%. Some cities add local income tax withholding as well.
States that do not use a flat rate usually apply the same aggregate approach the IRS describes. Check your state’s department of revenue for the current supplemental rate, since these figures change.
A high state rate is the main reason a bonus can feel taxed at 35% or 40% overall. Add 22% federal, 7.65% FICA, and a double-digit state rate, and the withholding total can approach 40% of the gross amount. That is withholding, not your final tax rate.
Why Your Refund or Balance Due Might Surprise You
A common worry is that a bonus will push you into a higher tax bracket and make your whole income taxed more. That is not how brackets work. Only the dollars above each bracket threshold are taxed at the higher rate.
If a bonus moves part of your income from the 12% bracket into the 22% bracket, only that portion is taxed at 22%. Your earlier dollars stay taxed at the lower rates. You never end up with less take-home pay after tax simply because you earned more.
Your final result at filing depends on all of your withholding for the year compared with your total tax. If you are a lower- or middle-income earner, flat-rate bonus withholding usually pushes you toward a bigger refund. If you are in the 24% bracket or above, or if you have a second job or other untaxed income, the same method can leave you owing.
The IRS withholding estimator on IRS.gov is the quickest way to test your own numbers. It accounts for your pay, filing status, and any bonus you expect.
Ways to Keep More of Your Bonus
You cannot avoid tax on a bonus, but you can control some of the timing and the amount that sits with the IRS during the year.
1. Redirect Part of It Into a 401(k)
If your plan allows it, you can send some or all of the bonus into your 401(k) before it is paid. Traditional 401(k) contributions reduce the wages subject to federal income tax. The employee deferral limit for 2026 is $24,500.
FICA still applies to those contributions, so Social Security and Medicare taxes are not avoided. Many payroll systems let you set a separate deferral percentage for bonus pay, so ask your HR or payroll team before the bonus date.
2. Update Your Form W-4
If you know you will be in a higher bracket this year, adjusting your W-4 can fix under-withholding across all your paychecks. This does not change the 22% flat rate on the bonus itself, but it reduces the risk of a balance due in April. The reverse also works: if you are consistently getting a large refund, you can reduce withholding.
3. About Timing
A bonus paid in December is taxed in the same year as one paid in January only if the payment dates fall in the same calendar year. A bonus paid on December 31 counts toward this year, while one paid on January 2 counts toward next year. If your income will drop next year, deferring the payment may lower your bracket on that money.
Not every employer can shift pay dates, and some arrangements trigger special IRS rules for deferred compensation. Treat this as a conversation with your employer and a tax professional, not a do-it-yourself move.
Special Cases: Signing Bonuses, Stock, and Overtime
Signing bonuses, retention bonuses, and performance bonuses are all treated as supplemental wages. They follow the same withholding rules described above. A signing bonus that you must repay if you leave early can complicate your tax year, so keep the agreement and ask payroll how a clawback would be reported.
Restricted stock units and similar stock compensation are also supplemental wages when they vest. Your employer typically withholds 22% on the value, which is often not enough for people in higher brackets. Many stock-compensation holders make estimated payments or raise their W-4 withholding to cover the gap.
Overtime is a separate question. Overtime pay is regular wages, not a bonus, and it is withheld using the normal tables. Federal law passed in 2025 created a temporary deduction for the premium portion of qualified overtime pay, but that deduction is claimed on your return and does not change the withholding on a bonus.
Cash prizes, commissions, and payouts for unused vacation time can also fall under the supplemental wage rules, depending on how your employer pays them. If a payment looks different from your normal check, your pay stub or payroll department can tell you which category it falls under.
