Bonuses are taxed as supplemental wages. The IRS allows two withholding methods: a flat 22% federal rate or the aggregate method, which combines the bonus with regular pay. Bonuses over $1 million are withheld at 37% on the excess. FICA taxes (Social Security + Medicare) apply to bonuses just like regular wages.
- Flat method: 22% federal withholding (simplest)
- Aggregate method: combined with regular pay, may withhold more
- FICA (6.2% SS + 1.45% Medicare) applies to all bonuses
How Bonuses Are Taxed
The IRS classifies bonuses as supplemental wages — compensation paid in addition to regular wages. This includes performance bonuses, signing bonuses, holiday bonuses, and commissions. Supplemental wages are subject to both income tax withholding and FICA taxes.
The key distinction is in withholding, not the final tax rate. When you file your return, bonus income is simply added to your other income and taxed at your ordinary rate. Any over-withholding results in a refund; under-withholding means you owe.
The 22% flat withholding rate is not a special “bonus tax rate.” It is simply a convenient withholding method. Your actual tax on the bonus depends on your total income and marginal tax bracket.
The Flat 22% Method
The simplest approach. The employer withholds a flat 22% for federal income tax on the entire bonus amount (up to $1 million). This method is straightforward and commonly used.
| Bonus Amount | Federal Withholding (22%) | SS (6.2%) | Medicare (1.45%) | Net Bonus |
|---|---|---|---|---|
| $1,000 | $220 | $62 | $14.50 | $703.50 |
| $5,000 | $1,100 | $310 | $72.50 | $3,517.50 |
| $10,000 | $2,200 | $620 | $145 | $7,035 |
| $25,000 | $5,500 | $1,550 | $362.50 | $17,587.50 |
State income tax withholding is applied on top of these amounts, and rates vary by state.
The Aggregate Method
The aggregate method treats the bonus as if it were part of your regular paycheck for the pay period. The employer combines the bonus and regular wages, calculates total withholding on the combined amount, then subtracts the amount already withheld on regular pay.
Combine Bonus + Regular Pay
Calculate Total Withholding
Subtract Regular Withholding
Because the aggregate method treats the combined amount as a single paycheck, it can push you into a higher withholding bracket. This often results in more tax being withheld compared to the flat 22% method — though the difference is reconciled on your tax return.
Which Method Is Better?
Neither method changes your actual tax liability — only the withholding amount varies.
| Scenario | Better Method | Why |
|---|---|---|
| Lower-income earners (10–12% bracket) | Flat 22%... overwitholds | You'll get a refund, but cash flow is reduced |
| Higher-income earners (24%+ bracket) | Flat 22% often underwitholds | You may owe when filing; aggregate may be more accurate |
| Very large bonuses | Aggregate | Better approximates actual liability at higher brackets |
| Employers wanting simplicity | Flat 22% | Easy to calculate, no combining with regular pay |
Bonuses Over $1 Million
For supplemental wages exceeding $1 million in a calendar year, the IRS mandates a 37% withholding rate on the amount over $1 million. The first $1 million can still use the flat 22% rate.
Frequently Asked Questions
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