Bonuses are withheld at 22% (or 37% for amounts over $1 million) when issued separately or at your regular tax rate when combined with your paycheck.
March 31, 2026
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Most bonuses have taxes withheld at 22%, with bonuses over $1 million taxed at 37%, per IRS Publication 15. The actual amount deducted depends on how your company issues the bonus, which can create tax surprises come filing season. The 22% and 37% withholding rates apply to both 2025 and 2026 — these rates have not changed.
If you're dealing with complex bonus tax situations, our best tax relief services can help you navigate the process.
This article was written by Emily Sherman, a personal finance journalist whose work has appeared in U.S. News & World Report, Buy Side from The Wall Street Journal, and Newsweek.
The federal tax withholding rate for bonuses is 22% for bonuses under $1 million and 37% for bonuses over $1 million — unchanged for both 2025 and 2026. The actual amount deducted from your paycheck depends on how your employer issues your bonus: as part of your regular paycheck or separately.
Your bonus will be taxed using one of two methods: the flat-rate method or the aggregate method.
The flat-rate method taxes your bonus at the standard 22% federal rate when issued on a separate paycheck. According to IRS Topic 421, this applies when your bonus is classified as supplemental income and issued separately from your regular pay.
"This happens when your bonus is considered supplemental income and typically appears on a separate paycheck from your regular income," explains Christine Damico, CFP and financial planner at Domain Money.
This method is straightforward to calculate. If you earn a $10,000 bonus, you can expect $2,200 withheld for taxes and $7,800 issued to you.
The downside is that this flat rate may not match your actual tax bracket, creating surprises at tax time.
Someone in the 12% bracket getting taxed at 22% has too much withheld. Conversely, a couple in the 35% bracket with only 22% withheld faced a large tax bill and penalties for underpaying.
"I see clients frustrated because they receive big refunds or tax bills due to bonuses," says Damico.
The aggregate method combines your bonus with your regular salary, applying your standard income tax withholding rate to both. If you normally withhold 35% from your paycheck, the same rate applies to your bonus.
This method is generally more accurate than the flat-rate method and helps ensure sufficient taxes are withheld. However, it can lead to excessive withholdings, resulting in a larger refund on your tax return at filing but less bonus money upfront.
Aggregate method example: Say your regular bi-weekly pay is $3,000 and your employer adds a $5,000 bonus to the same paycheck, making your total $8,000. Your employer calculates withholding as if you earn $8,000 every two weeks — roughly $208,000 annually — and withholds at that higher rate. This can feel like a much larger deduction than usual, even though your actual annual tax liability at filing is based on your real total income for the year.
Flat-Rate vs. Aggregate Method: Side-by-Side Comparison
Flat-Rate Method | Aggregate Method | |
How it works | Bonus withheld at a fixed 22% federal rate | Bonus combined with regular salary; withheld at your standard rate |
When it applies | Bonus issued on a separate paycheck | Bonus included in your regular paycheck |
Calculation example ($10,000 bonus) | $10,000 × 22% = $2,200 withheld; $7,800 net | Depends on your standard withholding rate |
Best for | Simplicity and predictability | Accuracy — more closely matches your actual tax bracket |
Risk | Over- or under-withholding if your bracket differs from 22% | Can cause paycheck shock due to higher combined withholding |
Result at filing | May trigger refund (if bracket < 22%) or bill (if bracket > 22%) | Generally more accurate; smaller filing surprises |
Most bonuses are treated the same for tax withholding purposes, regardless of why you receive them. All of the following count as supplemental income and are taxed at the rates defined above:
All supplemental wages are also subject to Social Security and Medicare taxes in addition to federal income tax withholding.
Exception: Employee achievement awards have different rules, with maximum tax-free amounts of $1,600 for qualified plans and $400 for non-qualified plans.
Bonuses feel over-taxed because they're withheld at different rates than your regular paycheck, making it seem like you're losing more money than expected.
"Often when people receive bonuses, it can feel like they're losing a lot in tax," says Kari Brummond, licensed enrolled agent at TaxCure.
The main reasons bonuses feel heavily taxed include:
If you usually get paid $1,000 per week but one week you get a bonus bringing your payment to $2,000, taxes will be withheld as if you make $2,000 every week. That can be startling if you were expecting your paycheck to be twice as big.
Four specific strategies can reduce your bonus tax liability — used together, they can meaningfully lower what you owe at filing.
The 22% or 37% rates cover only federal income tax withholding. Your state may impose supplemental withholding rates ranging from 3%-13%, depending on your state, on top of federal taxes.
How States Tax Bonus Income: Common Approaches
State Approach | How It Works | Example States |
Flat supplemental rate | Withholds a fixed percentage on bonus income only | Alabama (5%), California (10.23%) |
Same as regular income | Bonuses taxed at your standard state withholding rate | Massachusetts, New York |
No state income tax | No state withholding on bonuses | Florida, Texas, Nevada, Washington |
Always verify your state's current supplemental income rate at your state's official government tax website — rates change annually. Use the IRS state tax agency directory to find your state's tax authority.
Understanding how bonuses are taxed helps you plan ahead — so you're not caught off guard by a large tax bill or confused by a smaller-than-expected net payment.
1. How much is a $10,000 bonus after taxes?
A $10,000 bonus typically has $2,200 withheld for federal taxes at the 22% flat rate, leaving you with $7,800. However, your actual tax liability depends on your total income and tax bracket, so you may owe more or receive a refund when filing your return. State taxes and FICA apply on top of the federal withholding.
2. Why do bonuses get taxed at 40%?
Bonuses don't actually get taxed at 40%. The federal withholding rate is 22% for bonuses under $1 million. If you see higher deductions, it's likely due to the aggregate method — where your bonus is added to your regular pay, creating a higher combined withholding rate — plus state taxes and FICA taxes on top of the federal amount.
3. Can I put all of my bonus in my 401(k) to avoid taxes?
You can contribute part of your bonus to your 401(k) to reduce taxable income, but annual contribution limits apply:
2025: $23,500 (under 50); $31,000 (age 50 or older, including catch-up contributions)
2026: Verify current limits at irs.gov — limits adjust annually
You cannot contribute 100% of your bonus if it exceeds these limits, and some employers have policies limiting bonus contributions to retirement accounts.
4. Is a bonus taxed differently than regular income?
Yes — for withholding purposes. Bonuses are classified as supplemental wages and withheld at a flat 22% federal rate when issued on a separate paycheck. However, at tax filing, all income — salary and bonuses combined — is taxed at your actual marginal rate based on your total income for the year. The withholding rate and your final tax liability are two different things. You may receive a refund if too much was withheld, or owe additional tax if not enough was withheld.
5. What is the 2025 and 2026 supplemental wage withholding rate?
The federal supplemental wage withholding rate is 22% for bonuses under $1 million and 37% for amounts above $1 million — unchanged for both 2025 and 2026. These rates have remained consistent since 2018. Your state may apply additional withholding on top of these federal rates. Check your state's supplemental income tax policy for the current state-level rate, as these vary significantly and change annually.
Emily Sherman is a personal finance expert at BestMoney.com, specializing in online banking. Her work has appeared in U.S. News & World Report, Buy Side from the Wall Street Journal, Newsweek, and more. As a veteran journalist, Emily leverages her expertise to help readers make informed financial decisions.
