Are bonuses taxed at a higher rate than regular pay?

No — bonuses are taxed as ordinary income on your tax return. What differs is the withholding: most employers withhold a flat 22% federal rate from bonuses under $1 million, which can be higher or lower than your actual marginal rate. Any difference is reconciled when you file — you get the excess back as a refund, or owe the shortfall.

How much tax is withheld from a $5,000 bonus?

Under the flat-rate method: $1,100 federal income tax (22%), $310 Social Security (6.2%, if you are under the $184,500 wage base), and $72.50 Medicare (1.45%) — about $1,483 total before state tax, leaving roughly $3,517 from a $5,000 bonus. State withholding reduces it further in most states.

Why did my employer withhold more than 22% from my bonus?

The 22% figure is only the federal income tax portion. FICA (7.65%) always applies, state supplemental withholding applies in most states, and some employers use the aggregate method instead, which lumps the bonus with a regular paycheck and can push withholding well above 30–40% for that one check.

Can I reduce taxes on my bonus?

You can reduce the taxable amount by directing part of the bonus into a traditional 401(k), if your plan allows bonus deferrals — this cuts federal and state income tax (but not FICA). You cannot opt out of supplemental withholding itself, but if 22% over-withholds relative to your real bracket, you will recover the difference at filing time.

How Bonuses Are Taxed in 2026 — Supplemental Wage Withholding Explained

The short version

Bonuses are not taxed at a special higher rate. They're ordinary income, taxed at your normal bracket when you file. What surprises people is the withholding: the IRS lets employers withhold federal income tax from "supplemental wages" (bonuses, commissions, severance, stock vesting) at a flat rate instead of running them through the normal W-4 math. In 2026 that flat rate is 22% for supplemental wages up to $1 million per year, and a mandatory 37% on any amount above $1 million.

What counts as supplemental wages?

Cash bonuses (signing, annual, spot, retention)
Commissions paid separately from salary
Severance pay and back pay
Overtime premiums paid as separate checks
RSU vesting and non-qualified stock option exercises
Accumulated PTO/vacation payouts
Taxable moving expense reimbursements and prizes

The two withholding methods

1. Percentage (flat-rate) method — the common one

If your bonus is paid separately from regular wages (or listed separately on the stub), your employer can simply withhold 22% federal income tax. It's simple and predictable, which is why most payroll systems default to it.

Here's the full math on a $5,000 bonus for someone under the Social Security wage base:

Deduction	Rate	Amount
Federal income tax (supplemental)	22%	$1,100.00
Social Security	6.2%	$310.00
Medicare	1.45%	$72.50
Total federal withholding	29.65%	$1,482.50
Bonus after federal withholding		$3,517.50

State withholding comes out on top of that in most states — so it's completely normal for a $5,000 bonus to land as roughly $3,200–$3,500 in your account.

2. Aggregate method

If the bonus is paid with a regular paycheck as one combined amount, the employer must add it to that period's wages and run the normal W-4 withholding calculation on the total. Because the annualization method assumes you earn that combined amount every period, this can dramatically over-withhold — a $10,000 bonus added to a $2,500 biweekly check is withheld as if you earned $325,000 a year. You get the excess back at tax time, but it stings in the moment.

FICA always applies

Regardless of method, bonuses are FICA wages: 6.2% Social Security (until you hit the $184,500 wage base for 2026 — common for higher earners late in the year, at which point SS withholding stops) and 1.45% Medicare (no cap, plus 0.9% above $200,000 single / $250,000 married). A year-end bonus after you've crossed the wage base skips Social Security entirely — one reason December bonuses can net more than March ones for high earners.

State bonus withholding

Most states with an income tax also set a supplemental withholding rate — sometimes equal to their flat rate, sometimes a special one. A few notable examples: California withholds 10.23% on bonuses and stock compensation (its regular supplemental rate is 6.6%), while flat-tax states like Pennsylvania (3.07%) or Illinois (4.95%) simply apply their standard rate. No-income-tax states — Texas, Florida, Washington, and the other six no-tax states — withhold nothing from bonuses at the state level.

Why the "bonuses are taxed at 40%" myth persists

Add it up for a Californian: 22% federal + 6.2% SS + 1.45% Medicare + 10.23% state ≈ 40% withheld. That's real money gone from the check — but it's withholding, not final tax. If your actual marginal rate is 24% federal and ~9.3% state, you'll get some back; if you're in the 32%+ bracket, the flat 22% actually under-withholds federal tax and you may owe in April. Check your situation with the paycheck calculator and, for precision, the IRS Withholding Estimator.

Smart moves before a bonus hits

Defer into your 401(k): If your plan allows bonus deferrals, contributions reduce federal and state taxable income immediately (not FICA). Watch the annual contribution limit.
Expect the aggregate method if it's on your regular check: Ask payroll whether the bonus will be paid separately. Separate = predictable 22%.
High earners: check for under-withholding. If you're in the 32–37% bracket, 22% flat withholding on a large bonus can leave you owing at filing — consider W-4 line 4(c) extra withholding or an estimated payment.
Crossing $200,000: the extra 0.9% Medicare surtax kicks in mid-year on the paycheck that crosses the threshold.

Frequently asked questions

No. Bonuses are ordinary income on your return. Only the withholding differs — a flat 22% federal rate on separate bonus checks under $1 million. If that's more than your real rate, the difference comes back as a refund; if less, you owe the gap at filing.
Federally: $1,100 income tax (22%) + $310 Social Security + $72.50 Medicare = $1,482.50, leaving $3,517.50 — before any state withholding. In a no-income-tax state like Texas or Florida, that federal math is the whole story.
A bonus adds to your annual taxable income, so it can push the top slice of your income into a higher bracket. Only the dollars above the bracket threshold get the higher rate — a bonus never causes your whole salary to be taxed more, thanks to marginal brackets.
Yes — severance is supplemental wages, so the same flat 22% federal withholding (or aggregate method) applies, plus FICA and state withholding. Large severance packages above $1 million in a year hit the mandatory 37% rate on the excess.

How does paycheck withholding work? — the full method behind regular paycheck withholding.
W-4 withholding guide — using line 4(c) to fix under-withholding from bonuses.
Paycheck calculator — model your regular take-home pay in any state.

Last updated: July 2026 · Sources: IRS Publication 15 (Circular E, 2026) §7 Supplemental Wages, IRS Publication 15-T, state revenue agency supplemental rate schedules

How Bonuses Are Taxed (2026)