You just got a $10,000 year-end bonus. You're already mentally spending it — maybe a vacation, maybe catching up on bills. Then the deposit hits your account: $5,800. Nearly half your bonus vanished before it even reached you.
This is the most common (and most frustrating) question about bonuses: why is my bonus taxed so high? The answer involves a tax system that treats supplemental wages differently from regular pay — but not in the way most people think. Let's break down exactly what happens, why it happens, and what you can do about it.
See exactly how much of your bonus you'll keep after federal tax, state tax, FICA, and deductions.
Try the Bonus Tax Calculator →"My bonus is taxed at 22% (or 37%) — that's a special bonus tax rate."
This is not true. There is no separate "bonus tax." The 22% and 37% rates are withholding rates — a prepayment toward your total tax bill, not your actual tax rate. When you file your tax return, your bonus is treated as ordinary income and taxed at your regular marginal rate, which could be lower, the same, or (rarely) higher than the withholding rate.
The distinction matters enormously. If your actual marginal rate is 12% but your bonus was withheld at 22%, you overpaid by 10 percentage points. That money comes back to you as a tax refund — but not until you file your return, potentially months later.
Your bonus is not taxed differently. It's withheld differently. The IRS requires employers to use specific methods for supplemental wages to ensure enough tax is collected upfront. Your actual tax liability is calculated at filing time, based on your total income for the year.
The IRS gives employers two methods for withholding tax on bonuses and supplemental wages. Your employer chooses which method to use — you generally cannot select it yourself.
Under the flat rate method, your employer simply withholds 22% of your bonus for federal income tax. That's it — no bracket calculation, no consideration of your salary level. Here's what a $10,000 bonus looks like under the flat rate method:
| Deduction | Rate | Amount | Remaining |
|---|---|---|---|
| Gross Bonus | — | — | $10,000 |
| Federal Income Tax | 22% | −$2,200 | $7,800 |
| Social Security (6.2%) | 6.2% | −$620 | $7,180 |
| Medicare (1.45%) | 1.45% | −$145 | $7,035 |
| State Tax (varies, est. 5%) | ~5% | −$500 | $6,535 |
| Estimated Take-Home | — | −$3,465 | $6,535 |
That $10,000 bonus becomes roughly $6,535 after all withholdings. The 22% flat rate is the biggest single deduction, but FICA and state tax take additional bites.
The aggregate method is more complex — and can produce very different results. Your employer adds your bonus to your regular paycheck for that period and calculates withholding as if it were one large paycheck.
If you earn $5,000 biweekly (taxed at the 22% bracket) and receive a $10,000 bonus in the same period, the aggregate method taxes $15,000 at once. This pushes more of your income into the 24% bracket, resulting in higher total withholding than the flat rate method. In this scenario, the flat rate method (22% on the bonus) would actually result in less withholding than the aggregate method.
It's not just cash bonuses. The IRS defines supplemental wages broadly, and all of the following are subject to supplemental withholding rules:
This is a real concern — but it's less dramatic than most people fear. Because the U.S. uses a progressive tax system, only the income within each bracket is taxed at that rate. A bonus doesn't retroactively increase the tax rate on your regular salary.
Jamie earns $85,000/year (taxable income after deductions: $70,000). She receives a $15,000 bonus. Her new taxable income is $85,000.
| Bracket | Rate | Income in Bracket | Tax |
|---|---|---|---|
| $0 – $11,925 | 10% | $11,925 | $1,192.50 |
| $11,926 – $48,475 | 12% | $36,550 | $4,386 |
| $48,476 – $85,000 | 22% | $36,525 | $8,035.50 |
| Total Federal Tax | $13,614 | ||
| Effective Rate | 16.0% | ||
Without the bonus, Jamie's effective federal rate was about 12.9%. With it, her effective rate is 16.0%. Her marginal rate on the last dollar of the bonus is 22%, but her overall rate increased by only 3.1 percentage points. The bonus didn't make her entire salary subject to higher taxation — only the portion that falls within the new bracket.
Increase your 401(k) contribution rate in the pay period when your bonus hits. If your employer allows per-paycheck elections, temporarily boosting your 401(k) to capture a larger portion of the bonus reduces your taxable income. The same applies to HSA contributions and pre-tax transit benefits.
If your employer uses the flat rate method and your marginal rate is below 22%, you're over-withheld on every bonus. Reduce your regular withholding allowances on your W-4 to compensate. This won't change the bonus withholding itself, but it reduces withholding on your regular paychecks, giving you more cash flow throughout the year.
If you have any control over when you receive your bonus, consider the timing. Receiving a December bonus adds to your 2026 income. Receiving a January bonus adds to your 2027 income. If you expect a significant change in income between years (job change, retirement, sabbatical), timing matters. Moving $20,000 of income from a high-income year to a lower-income year could save $2,000–$4,000 in taxes.
You have until April 15 of the following year to make IRA contributions. If your bonus pushes you into a higher bracket, contributing to a traditional IRA (up to $7,000, or $8,000 if 50+) reduces your taxable income. At the 22% bracket, a $7,000 contribution saves $1,540 in federal taxes.
If you're charitably inclined, "bunching" several years of giving into one year using a donor-advised fund can push you above the standard deduction threshold, allowing you to deduct charitable contributions. This is especially effective in a bonus year when your income (and tax bracket) is higher than usual.
If your supplemental wages exceed $1 million in a calendar year, the withholding rate jumps. The first $1 million is withheld at 22%, and any amount over $1 million is withheld at the highest rate: 37%. This applies regardless of the method your employer uses.
A company car, vacation package, or gift card is taxable at its fair market value. A $3,000 vacation package is reported as $3,000 of supplemental income. Your employer should include this on your W-2 and withhold accordingly. If they don't, you still owe the tax — you'll need to report it and pay when filing.
If your regular pay is entirely commission-based, the IRS treats commissions as regular wages, not supplemental. This means they're taxed using the aggregate method by default. However, if you receive both a regular salary and commissions, the commissions are typically treated as supplemental wages.
Our calculator shows your exact bonus after federal, state, FICA, and any additional deductions.
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