How Are Bonuses Taxed? What To Know Before Your Bonus Hits Your Paycheck

You just received a bonus! But before you plan that celebratory splurge, there’s something to know: Uncle Sam is going to take a cut.

The IRS classifies bonuses as supplemental wages, which means they’re typically withheld at a flat 22% rate — separate from your regular paycheck. That doesn’t necessarily mean you’ll owe more in taxes overall, but it can affect how much you see in your bonus check upfront. In some cases, you may receive some of that back as a refund when you file your return.

Quick Take

• Bonuses are treated as supplemental wages and are taxed at a flat rate of 22%.

• It may seem like your bonus is taxed at a higher rate, but the 22% is just the withholding rate. Your final tax bill depends on your total income for the year.

• If your bonus pushes you into a higher tax rate, there are strategies to reduce your taxable income.

Are Bonuses Taxed Differently Than Regular Income?

Regular income and bonuses are both taxed as ordinary income. However, bonuses can feel like they’re taxed differently because the IRS classifies them as supplemental wages.

In most cases, employers withhold a flat 22% from bonuses. That withholding rate may be higher than the percentage taken out of your paycheck, which can make the bonus feel more heavily taxed.

But the 22% is just withholding. Depending on your overall income and withholding, you may receive some of that money back — or owe more taxes.

Will a Bonus Push You Into a Higher Tax Bracket?

It might — but only a portion of your income would be taxed at the higher rate.

The U.S. tax system is progressive, which means different portions of your income are taxed at different rates. If your bonus pushes your total income into a higher tax bracket, only the amount above that threshold is taxed at the higher rate — not your entire income.

The Two Ways Employers Withhold Taxes on Bonuses

An employer can use the percentage method or aggregate method to withhold taxes on bonuses. Here are the specifics:

Percentage Method

This is the most common way to withhold taxes from bonuses. The bonus is treated like a separate paycheck. The IRS requires that employers withhold a flat 22% from your bonus.

Here’s an example:

Imagine you earned $6,000 as a bonus. Your employer would send the IRS $1,320 to cover the flat 22% withholding.

Pros and Cons of the Percentage Method

Aggregate Method

Under the aggregate method, your employer adds your bonus to your regular paycheck instead of issuing a separate payment.

Here's a quick example:

Imagine you normally earn $4,000 in a pay period and receive a $2,000 bonus at the same time. Your employer combines the amounts and treats your pay as $6,000 for that time period.

Payroll software then calculates withholding based on the full $6,000 using the standard income tax tables. Because the total pay is higher for that period, more tax may be withheld than usual.

Pros and Cons of the Aggregate Method

Why Does My Bonus Look So Heavily Taxed?

Bonuses are taxed at a flat 22% withholding rate. That can make it seem like more tax is taken out compared to your regular paycheck. But federal income tax withholding is only part of the picture. Your bonus is also subject to:

• Social Security taxes: 6.2%

• Medicare taxes: 1.45%

• State taxes: Varies by state

When all of these taxes are combined, the total withholding can make your bonus feel significantly smaller than expected.

How To Reduce the Tax Impact of a Bonus

Want to keep more of your bonus? Consider these strategies.

• Direct your bonus to a 401(k): You can ask your employer to direct a large part of your bonus to your 401(k). This will automatically reduce your taxable income.

• Use your bonus for your health savings account (HSA): You can have your bonus funds deposited in an HSA to benefit from the triple tax advantage.

• Ask for your bonus to be deferred: If you anticipate being in a lower tax bracket the following year, ask if your employer can defer your bonus.

• Consider charitable contributions: If your bonus pushes you into a higher tax bracket, think about making a charitable contribution during the same year.

• Adjust your withholding: You can temporarily increase your withholding on your paycheck to avoid any tax surprises later when you file.

Key Takeaways

• Bonuses are considered supplemental wages, and the federal withholding is a flat 22% rate.

• If you’re in a lower tax bracket, expect to receive some of your bonus back when you file your tax return.

• There are strategies to lower your taxable income if your bonus pushes you into a higher tax bracket. 

Bonus Tax FAQs

Bonuses can be confusing at tax time. These FAQs explain how withholding works and what to expect.

Why is my bonus taxed at 22%?

The IRS classifies bonuses as a supplemental wage. Typically, employers withhold a flat rate of 22% on bonuses that are under $1 million.

Are bonuses taxed at 40%?

Your bonus is not taxed at 40%. However, it is possible to have 40% withheld upfront.

Do bonuses increase my tax bracket?

The portion of the bonus that pushes you into a higher tax bracket is taxed at a higher rate.

Are bonuses taxed more than overtime?

Under the One Big Beautiful Act (OBBA), qualified overtime can qualify as a deduction. You can deduct up to $12,500 of the extra half of your overtime pay from your federal taxes. Bonuses will be taxed as ordinary income.

Do I owe more taxes when I file?

Usually, tax filers overpay taxes on their bonuses. You typically will not owe more taxes on your bonus when you file.

Sources

• IRS. 2025. "One, Big, Beautiful Bill Act: Tax deductions for working Americans and seniors."

• TurboTax. 2025. "How Bonuses Are Taxed."