Updated 2026-08-29
The flat 22 percent supplemental rate
The most common method employers use is the percentage method. Federal income tax is withheld at a flat 22 percent on the bonus amount, regardless of your regular tax bracket. On top of that, standard payroll taxes apply:
- Social Security: 6.2 percent (on wages up to the annual Social Security wage base)
- Medicare: 1.45 percent (plus an additional 0.9 percent on individual wages above 200,000 dollars in the year)
State and local income tax may also be withheld separately. Because state rules vary widely, use your state calculator to check the state portion.
If a single bonus (or the cumulative supplemental wages you receive in the year) exceeds 1 million dollars, the amount above 1 million is withheld at the top statutory rate — currently 37 percent — under the mandatory flat rate rule in IRS Publication 15.
Percentage method vs. aggregate method
Employers may use one of two IRS-approved methods, and they can give very different paycheck-day results even though the year-end tax you owe is the same.
| Method | When it is used | How federal income tax is withheld |
|---|---|---|
| Percentage method | Bonus paid separately from regular pay, or listed separately on the pay stub | Flat 22 percent on the bonus amount |
| Aggregate method | Bonus combined with regular wages in a single payment | Bonus is added to regular pay for the period; withholding is calculated on the combined total using your W-4 |
The percentage method is simple and predictable. The aggregate method can withhold more if the combined check pushes you into a higher marginal bracket for that pay period, or less if your W-4 has extra allowances or dependents claimed.
Worked example: 5,000 dollar bonus
Say you receive a 5,000 dollar bonus as a separate check. Using the percentage method:
- Federal income tax: 5,000 x 22 percent = 1,100 dollars
- Social Security: 5,000 x 6.2 percent = 310 dollars
- Medicare: 5,000 x 1.45 percent = 72.50 dollars
- Total federal payroll withholding: 1,482.50 dollars
- Net federal take-home (before state and local): 3,517.50 dollars
If your state has income tax, subtract that too. If you have 401(k) contributions or benefit deductions applied to bonuses, those come out first and reduce the taxable amount.
Note that the 1,100 dollars withheld is not the tax you owe on the bonus — it is a prepayment. If your actual marginal bracket is 12 percent, you effectively over-paid and will get some back when you file. If your marginal bracket is 32 percent or higher, 22 percent under-withheld and you may owe more.
Why the bonus feels smaller than expected
Three factors typically make a bonus check land lighter than the sticker figure:
- Flat 22 percent is higher than most regular-wage brackets, so the withholding rate on the bonus is more aggressive than on a normal paycheck.
- FICA still applies, adding 7.65 percent on top of the income tax withholding.
- Voluntary deductions (401(k), HSA, insurance) may pull from the bonus depending on plan design. Some plans exclude bonuses; others include them.
None of this changes the total tax you owe for the year. Withholding is a running deposit against your annual liability — over-withholding turns into a refund, under-withholding into a bill.
Also worth naming: if a bonus is paid on the same check as regular wages, the employer often uses the aggregate method by default. That can push withholding above the 22 percent flat rate if the combined check crosses a higher pay-period bracket, and it is the most common reason a bonus that was expected to withhold at 22 percent lands at 28 or 30 percent instead. Ask payroll which method was used before you assume the stub is wrong.
Ways to reduce bonus withholding legally
You cannot change the flat 22 percent supplemental rate. What you can do:
- Route more of the bonus into a pre-tax 401(k) or HSA (if your plan allows bonus deferrals). Pre-tax contributions reduce the wages subject to federal income tax withholding.
- Adjust your W-4 so regular-paycheck withholding is not also over-set, which prevents doubling up on tax deposits.
- Ask whether the bonus can be paid using the aggregate method if your W-4 reflects dependents or credits that would lower the calculated withholding.
Any excess withholding is refunded at tax time, so the money is not lost — it is just delayed.
Two more practical steps. First, if you want a bonus 401(k) deferral to apply, submit the election through your plan portal before the payroll cut-off for the bonus run — same-day changes usually do not catch the check. Second, check whether your employer offers a nonqualified deferred compensation plan; a portion of the bonus can sometimes be deferred into a future tax year, though these plans carry their own vesting rules and forfeiture risks.
State, local, and other considerations
State supplemental withholding rules differ widely: some states apply a flat supplemental rate, some use their regular income tax tables, and a handful have no income tax at all. Use your state calculator to see the state and local piece.
If the bonus is non-cash (a gift card or prize), it is still taxable wages at fair market value and still subject to withholding. Employer contributions to retirement plans on your behalf, on the other hand, are not counted as current-year wages.
Timing also matters. A bonus paid on December 31 is taxed in that calendar year; a bonus paid on January 2 shifts into the next year. If you have flexibility, splitting a large bonus across two tax years can smooth marginal-rate impact, though most employers set the payout date centrally and do not offer that choice individually. Referral bonuses, sign-on bonuses, and retention bonuses all follow the same supplemental-wage rules — the reason for the payment does not change the withholding math.
One more distinction people miss: a bonus paid on a W-2 is treated as wages and follows the rules above; the same payment sent to a 1099 contractor is not a bonus for payroll purposes — no supplemental withholding, no FICA held by the payer, and self-employment tax applies at filing. If you receive both W-2 and 1099 payments from the same organization, the classification of each dollar decides the withholding math and the year-end forms you receive.
<p>This is a plain-English explainer, not tax advice; verify current federal thresholds against IRS Publication 15 and use your state calculator for state and local amounts.</p>
Frequently asked questions
Are bonuses taxed at a higher rate than regular pay?
<p>No. The 22 percent supplemental federal withholding is just a paycheck-time rate. Your actual tax liability on the bonus is based on your total annual income and filing status. If withholding was too high, the excess comes back as a refund.</p>
What is the supplemental wage withholding rate in 2026?
<p>The federal supplemental rate is a flat 22 percent on bonuses up to 1 million dollars per year, and 37 percent on any portion above 1 million dollars. These rates are set by IRS Publication 15 and have been stable for several years.</p>
Do FICA taxes apply to bonuses?
<p>Yes. Social Security (6.2 percent, up to the annual wage base) and Medicare (1.45 percent, plus 0.9 percent above 200,000 dollars) apply to bonuses the same way they apply to regular wages.</p>
Can I put my whole bonus in my 401(k) to avoid tax?
<p>You can defer bonus dollars to a 401(k) up to your plan limit and the annual IRS elective deferral cap, which reduces the federal income tax withheld on the bonus. FICA still applies to the deferred amount. Check with your payroll or plan administrator to confirm bonus deferrals are allowed.</p>
Why did my bonus check show only about 60 percent of the gross?
<p>Between the 22 percent federal supplemental rate, 7.65 percent FICA, any state income tax, and voluntary deductions like 401(k) or benefits, it is common for a bonus check to land at 55 to 70 percent of gross. The exact split depends on your state and your deductions.</p>
Do I have to pay estimated taxes on a large bonus?
<p>If a large bonus creates a significant under-withholding situation for the year, the IRS may require estimated tax payments to avoid an underpayment penalty. This applies mainly when the bonus pushes you above the standard safe-harbor thresholds. A tax professional can confirm whether estimates are needed in your case.</p>