How Are Bonuses Taxed in the US?
Bonuses are classified as supplemental wages by the IRS and are subject to federal income tax withholding under one of two methods. The most common — and what this calculator defaults to — is the flat rate method (22%): employers simply withhold a flat 22% for federal income tax on bonus payments under $1 million. This is mandated by IRS Publication 15 and applies regardless of the employee's actual tax bracket. If your marginal tax bracket is lower than 22% (e.g., 12%), you will typically receive a refund for the over-withheld amount when you file your annual W-2 federal return. If you are in the 32%, 35%, or 37% bracket, the flat 22% withholding will be less than your actual tax liability, resulting in a balance due at tax time unless adjusted elsewhere.
The second method is the aggregate method: the employer adds the bonus to your most recent regular paycheck, calculates withholding on the combined total using your W-4 and standard payroll tables, then subtracts the withholding already applied to your regular paycheck. This method often results in higher effective withholding because the combined amount may push you into a higher bracket for that pay period. For bonuses over $1 million, the IRS requires withholding at 37% on the excess above $1M. All bonuses are also subject to Social Security tax (6.2%) up to the 2025 annual wage base of $176,100, and Medicare tax (1.45%) on all compensation (plus the additional 0.9% ACA surtax above $200,000 for single filers). State income tax is applied at your state's rate — which ranges from 0% in nine no-income-tax states to 13.3% in California.
One powerful strategy to reduce the immediate tax hit on a bonus is to contribute directly to your pre-tax 401(k). By directing some or all of a bonus into a traditional 401(k) before the payroll processing date, you reduce the taxable supplemental income and save at your marginal rate. Discuss this option with your employer's HR or payroll department before your bonus is processed. All calculations in this tool run locally in your browser — your compensation data is never transmitted to any server.
Frequently Asked Questions
Under the IRS flat-rate supplemental withholding method, employers withhold exactly 22% for federal income tax on bonuses — regardless of your actual tax bracket. Combined with 6.2% Social Security, 1.45% Medicare, and state taxes, the total withholding can reach 30–40%, making it feel much higher than a regular paycheck. However, this is withholding — not your actual tax liability. If 22% exceeds your true marginal rate, you'll receive the difference as a tax refund when you file your W-2 federal return in April.
Yes. The most effective legal strategies include: (1) Directing the bonus into a traditional 401(k) pre-tax before payroll processes — reduces taxable supplemental income dollar-for-dollar; (2) Asking your employer to defer the bonus to January of the next tax year if it doesn't push you into a higher bracket then; (3) Using the bonus to fund an HSA contribution (if eligible) for another pre-tax deduction; (4) Donating a portion to a charity via a Donor-Advised Fund (DAF) for an immediate federal deduction. Always consult a CPA or CFP for personalized tax strategy.
Yes — signing bonuses, performance bonuses, retention bonuses, referral bonuses, and holiday bonuses are all treated identically as supplemental wages by the IRS. They are all subject to the same 22% flat withholding (or aggregate method) for federal tax, plus FICA and state taxes. One exception: if a signing bonus includes a clawback provision (repayment required if you leave within a set period), there are specific IRS rules for the tax treatment of repaid amounts in IRS Publication 525.