A cash bonus is taxed as regular wage income on your return, yet it may have higher withholding on payday because employers follow “supplemental wage” rules.
A bonus feels like a win until you open the paystub and the net deposit looks light. That gap is usually not a special “bonus tax.” It’s withholding math plus the same payroll taxes that hit ordinary wages.
This piece explains what happens in the United States when you get a bonus: what comes out on payday, what you settle at filing time, and how to keep surprises small.
How bonuses are taxed on payday and at filing time
Two numbers matter:
- Withholding is money your employer sends in during the year. It’s a prepayment.
- Your final tax is calculated on your return from total yearly income after deductions and credits.
A bonus is wage income. On your return it’s added to your other wages. If too much was withheld, you may get a refund. If too little was withheld, you may owe.
Why bonuses often look “taxed” higher on the paystub
Most employers treat bonuses as supplemental wages. The IRS allows set ways to withhold federal income tax on supplemental wages. One common method uses a flat rate, so the federal line can jump even when your usual paychecks look normal.
There’s another gotcha: withholding is computed check-by-check. Your tax return is computed year-by-year. Those two views don’t always match, so the bonus check can feel harsher than the final math.
Federal income tax withholding on bonuses
Employers commonly use one of two approaches from IRS Publication 15 (Circular E) supplemental wage rules.
Percentage method (flat-rate withholding)
If the bonus is paid separately (or clearly identified as a bonus), your employer may withhold federal income tax at a flat 22% on supplemental wages up to $1 million per employee per year. Amounts over $1 million are subject to mandatory withholding at 37%. This is withholding, not your final rate.
Aggregate method (bonus added to a regular paycheck)
Your employer can add the bonus to your regular wages for that pay period, then calculate withholding on the combined amount. The tables assume you earn that level all year, so a one-time spike can trigger higher withholding for that check.
Where your Form W-4 fits in
Your W-4 steers wage withholding through the year. A bonus can expose a mismatch between your settings and your real year-end bill. The IRS notes that the Tax Withholding Estimator FAQs cover bonuses and can help you adjust W-4 entries to match your pay pattern.
Payroll taxes that can come out of a bonus
A bonus is usually subject to payroll taxes, the same as ordinary wages:
- Social Security tax (OASDI) up to the annual wage base
- Medicare tax with no wage base limit
- Additional Medicare Tax withheld once wages pass the payroll threshold
For 2026, the Social Security wage base is $184,500, and the employee Social Security rate is 6.2%, per the SSA Contribution and Benefit Base page. Medicare withholding is generally 1.45% on covered wages.
How the Additional Medicare piece works
Once your wages from one employer pass $200,000 in a calendar year, that employer must withhold an extra 0.9% Medicare amount on the wages above that mark, even if your filing status would use a different threshold. The IRS explains both the threshold amounts and the employer withholding trigger on its Social Security and Medicare withholding rates topic.
That rule creates a common surprise in two directions:
- If you file jointly and your combined wages stay under the joint threshold, you may see extra Medicare withheld on the paystub and get it back on the return.
- If you have two jobs and neither job crosses $200,000 on its own, your employers may not withhold the extra Medicare amount even when your combined wages put you over the threshold. You may owe at filing time.
State and local taxes on bonuses
States and cities set their own withholding rules. Some use a flat supplemental rate. Some fold the bonus into wage tables. A few states have no income tax. Your paystub follows your work location rules, not just where you live.
If you moved mid-year or work in multiple states, your bonus stub is worth saving. It shows which jurisdiction received withholding, which helps at filing time.
How retirement plans and benefits can change the net bonus
Taxes are not the only reason a bonus shrinks. Depending on your plan setup and elections, a bonus may also trigger retirement deferrals, benefit premiums, or garnishments. If you see a big drop that isn’t explained by taxes, scan the deductions section first.
Many plans treat bonuses as eligible compensation. If your plan allows it, a bonus deferral can reduce taxable wages for income tax, yet payroll taxes still apply in most cases. If you were counting on cash in hand, check your deferral setting before bonus season.
Table: What can be taken out of a bonus check
| Item on the paystub | What it is | What to watch |
|---|---|---|
| Federal income tax withholding | Prepayment toward your federal income tax bill | Flat 22% or table-based withholding can look high in one check |
| State income tax withholding | Prepayment toward state income tax, if your state taxes wages | Many states have special bonus rates; your state website spells out the rule |
| Local income tax withholding | City or county wage tax, where applicable | Often tied to work location; remote work can change it |
| Social Security (OASDI) | Payroll tax withheld up to the annual wage base | No OASDI should be withheld once year-to-date wages pass the base |
| Medicare | Payroll tax withheld on covered wages with no wage cap | Still applies even after the Social Security wage base is met |
| Additional Medicare withholding | Extra Medicare withholding after $200,000 of wages from one employer | May be too much or too little for your filing status once all income is combined |
| Retirement plan deferral | 401(k)/403(b) contributions if your plan allows bonus deferrals | Reduces take-home pay; may also reduce taxable wages for income tax |
| Other deductions | Insurance premiums, garnishments, or benefit programs | Some payroll setups apply these to all wage payments, including bonuses |
How your real tax on the bonus is determined at filing time
On your return, the bonus is part of your total wages. Federal income tax is calculated on taxable income after deductions, then applied through progressive brackets.
So a bonus can place the top slice of your income into a higher bracket. Only that slice is taxed at the higher bracket rate. The rest keeps its bracket rates.
A practical way to estimate what the bonus adds
Say your taxable income without the bonus would land near the top of your bracket. Add a bonus and part of it may spill into the next bracket. To estimate the extra federal income tax the bonus creates:
- Estimate your taxable income for the year without the bonus.
- Add the bonus amount.
- Compute the tax on both totals, then subtract.
This is the same idea tax software uses. The difference is that software will also count credits and deductions you enter, so the estimate gets tighter as you fill it out.
Why the bonus withholding can miss your final bill
The flat 22% method is a single setting. If your top marginal bracket is below 22%, you may get some of that back at filing. If your top bracket is above 22%, you may owe more later unless your regular paychecks already covered the gap.
The aggregate method can overshoot when payroll treats the bonus like a huge regular paycheck. The tables assume that pay repeats all year, so the one check can carry withholding that is larger than what your bonus adds to your year-end tax.
That’s why two coworkers with the same bonus can see different net deposits. Filing status, other income, pre-tax deductions, and W-4 settings can all change what withholding is taken during the year, even when the bonus amount matches.
Table: Common employer withholding setups for bonuses
| Payroll setup | How withholding is computed | What you’ll notice |
|---|---|---|
| Separate bonus check | Often uses flat 22% federal withholding under the supplemental wage rules | A steady federal line item, plus payroll taxes |
| Bonus added to a normal paycheck | Uses withholding tables on the combined amount for that pay period | Federal withholding can jump sharply for that check |
| Two lines on one check (wages + bonus) | May apply flat rate to the bonus line, tables to the wage line | More detail on the stub; still one deposit |
| Commission-heavy pay | Often treated as supplemental wages, method varies by payroll policy | Withholding may swing through the year as pay swings |
| Year-end payroll true-up | Payroll may correct prior under-withholding | A surprise jump in withholding late in the year |
Steps that reduce bonus-time sticker shock
- Check year-to-date wages before the bonus hits so you know whether Social Security tax will still apply.
- Ask how the bonus will be paid (separate check or bundled) so the withholding method won’t surprise you.
- Run an estimate of your year-end tax with and without the bonus, then adjust W-4 if you tend to owe.
- Set aside cash for state tax if your state’s bonus withholding often runs light for you.
- Save the bonus paystub for filing season; it’s the clean record of what was withheld.
References & Sources
- Internal Revenue Service (IRS).“Publication 15 (Circular E), Employer’s Tax Guide.”Defines IRS-approved withholding methods for supplemental wages such as bonuses, including the 22% and 37% rates.
- Internal Revenue Service (IRS).“Tax Withholding Estimator FAQs.”Explains how W-4 inputs and the estimator handle bonuses and other pay changes.
- Internal Revenue Service (IRS).“Topic No. 751, Social Security and Medicare withholding rates.”Lists payroll tax rates and explains the $200,000 trigger for employer withholding of the 0.9% Additional Medicare amount.
- Social Security Administration (SSA).“Contribution and Benefit Base.”Lists the 2026 Social Security wage base and OASDI tax rates used for payroll withholding.