How Bonuses Are Taxed

Bonuses are considered "supplemental wages" by the IRS and can be taxed using one of two methods.

Method 1: Flat Rate (Most Common)

Employers often withhold a flat 22% for federal taxes on bonuses up to $1 million. This is simpler and the most common approach.

Federal withholding: 22%
Social Security: 6.2% (up to wage base)
Medicare: 1.45%
State taxes: Varies

Method 2: Aggregate Method

Some employers add your bonus to your regular paycheck and withhold based on the combined total as if it were your normal pay. This can result in higher withholding if the combined amount pushes you into a higher bracket.

Will You Get Money Back?

Withholding is not the same as your actual tax liability. If too much is withheld, you'll get a refund when you file taxes. If too little, you'll owe.

The 22% flat rate often results in slight over-withholding for people in the 12% or lower brackets, meaning you may see some back at tax time.

Types of Bonuses

Annual bonus: Based on company/individual performance
Signing bonus: One-time payment when joining
Spot bonus: Ad-hoc recognition for achievements
Referral bonus: For successful employee referrals
Holiday bonus: Year-end appreciation

Planning for Bonus Taxes

Don't plan to spend 100% of your gross bonus. Expect to take home 65-75% after all taxes, depending on your state and bracket.

Smart bonus uses: emergency fund, debt payoff, retirement contributions, or investments.