CalcEvery December, the same scene: the bonus email says $5,000, the deposit says $3,300, and someone in the group chat declares that “bonuses are taxed at like 40 percent.” They are not. Bonuses are taxed at exactly your ordinary income rates in the end; they are merely withheld differently up front, and the difference between those two words is worth an entire guide, because misunderstanding it causes people to dread, mistime, and even negotiate away money that was never actually lost.
Supplemental wages: why bonuses get their own rulebook
The IRS classifies bonuses, commissions, severance, prizes, back pay, and similar payments as supplemental wages, separate from regular salary. Regular paychecks are withheld using your W-4 and the assumption that this check, annualized, is your income. Bonuses break that assumption: annualize a $5,000 bonus paid on top of a normal check and the withholding tables briefly believe you earn an extra $130,000 a year. The supplemental rules exist to stop that distortion, and employers may use either of two methods.
Method one: the flat 22 percent
When a bonus is paid separately from regular wages (or identified separately on the same check), most employers withhold a flat 22% for federal income tax. No W-4, no tables, no annualizing: 22 cents per dollar, up to $1 million of supplemental wages in a year. Above $1 million, the mandatory rate jumps to 37% on the excess, a bracket exactly one demographic ever meets. The 22% is pure withholding; your real tax on the bonus is whatever your marginal bracket says when everything is reconciled on your return, which is the entire subject of marginal vs effective rates.
Method two: the aggregate method
If the bonus is lumped into a regular paycheck without separate identification, the employer withholds using the normal W-4 process on the combined amount. Because the tables annualize, this usually over-withholds harder than the flat method, which is why an aggregated bonus check can look brutally taxed. Same reconciliation applies: the excess returns at filing. Neither method changes your actual tax by a dollar; they only change the timing of when you and the IRS settle up.
FICA does not do methods
Social Security (6.2%, until your year-to-date wages cross the $184,500 base) and Medicare (1.45%, plus 0.9% above $200,000) apply to bonuses like any wages, under every method, in every state. This is the portion of bonus withholding that never comes back at filing, because it was never over-withheld in the first place; the mechanics live in the FICA explainer. One pleasant corollary: a late-year bonus paid after you have crossed the wage base skips the 6.2% entirely, an accidental 6.2% raise for high earners with December bonuses.
The worked example: $5,000 bonus, Michigan employee
| Line item | Amount | Rate |
|---|---|---|
| Bonus (gross) | $5,000 | |
| Federal withholding (flat method) | $1,100 | 22% |
| Social Security | $310 | 6.2% |
| Medicare | $72.50 | 1.45% |
| Michigan supplemental | $212.50 | 4.25% |
| Deposited | $3,305 | 66.1% of gross |
Now the reconciliation. Suppose this employee’s actual marginal federal bracket is 12%. The bonus’s true federal tax is $600, but $1,100 was withheld, so $500 of this bonus comes back at filing, arriving in the springtime refund where nobody ever credits it to the bonus. Their real all-in tax on the bonus was about 24%, not the 34% the deposit implied. A 22%-bracket employee breaks roughly even on the federal piece; only 24%-and-up earners are under-withheld by the flat method and may want extra withholding to cover the gap. Run any bonus and state through the bonus tax calculator to see your own split.
Enter any bonus amount and see federal, FICA, and state withholding with a donut chart of what you keep versus what each layer takes.
State supplemental rates: the quiet stack
Most income-tax states withhold on bonuses at their own supplemental rate, often simply the state’s flat or top-ish rate: Michigan uses its 4.25%. The nine no-income-tax states stack nothing, one more line item in Florida’s favor detailed in the Florida paycheck guide. City income taxes, where they exist, generally apply too. None of this changes the principle: withholding now, truth at filing.
Making a bonus work harder: three legal levers
First, 401(k) deferral: many plans let you set a separate contribution percentage for bonuses, and a bonus is the least painful money you will ever defer, since it was never part of the monthly budget; the pre-tax math from the 401(k) paycheck guide applies at full strength, and a large bonus deferral can single-handedly max a year’s contribution. Second, timing at the margins: a December-versus-January payment date moves the income across tax years, which matters in years your bracket changes (new job, new child, retirement). Third, HSA and FSA elections during open enrollment can be sized knowing the bonus is coming. What is not a lever: turning down a raise or bonus “to stay in a lower bracket,” which the marginal system makes mathematically impossible to benefit from.
Bonuses vs raises: different money, different math
A $5,000 bonus and a $5,000 raise cost an employer similarly and reach you very differently. The bonus is one taxed event; the raise repeats every year, compounds through future percentage raises and 401(k) matches, and lifts the base every future bonus percentage multiplies. When an employer offers a choice, the raise is usually worth multiples of the same-sized bonus over a few years, arithmetic laid out in what a raise is really worth. Take the bonus when the number is much bigger or the job is short-term; otherwise, permanence beats confetti.
Commissions, RSUs, and the rest of the supplemental family
The 22% flat rule covers more than holiday bonuses. Commissions paid separately from salary are supplemental wages under the same withholding, which is why heavy-commission months feel over-taxed and reconcile in April. Restricted stock units are the sneaky one: when RSUs vest, their full market value is supplemental wage income, typically withheld at the flat 22%, and for tech and finance employees whose actual marginal rate is 24, 32, or 35 percent, that gap is the single most common cause of a shocking April bill. If RSUs are a meaningful slice of your pay, check the withheld percentage on each vest against your true bracket and cover the difference through extra withholding or estimated payments before the shortfall compounds across four quarterly vests.
Above $1 million: the mandatory 37
Supplemental wages are tallied cumulatively across the calendar year, and once they pass $1 million, federal law removes the choice: everything above the line must be withheld at 37%, the top bracket rate, regardless of W-4s or methods. It is the one place in withholding where the government assumes the worst-case bracket on purpose. For the handful of readers this concerns, the planning conversation moves from percentages to timing and deferral, and it happens with a professional, not a blog post.
Gross-ups: when the employer eats the withholding
Relocation packages and signing bonuses sometimes promise a net amount: “you will receive $5,000 after taxes.” Delivering that requires a gross-up, and the algebra runs backward: gross = net / (1 – combined withholding rate). At our Michigan example’s combined 33.9%, handing you a clean $5,000 requires paying about $7,565, because the gross-up itself is also taxable and must be grossed up in turn. If an offer letter says “net,” the employer is quietly paying half again more than the headline; if it says “gross,” now you know exactly what fraction survives to the deposit, and the calculator below prices it in seconds.
Several bonuses a year: the cumulative truth
Quarterly bonuses and monthly commissions each get the flat treatment in isolation, but April cares only about the annual total. Four $5,000 bonuses withheld at 22% behave exactly like one $20,000 bonus: fine for a 12 or 22 percent-bracket earner, structurally light for anyone above. The clean habit for variable-pay workers is a mid-year checkup: year-to-date supplemental income times your true marginal rate, versus year-to-date supplemental withholding, with the gap fixed on the regular W-4 while months remain. Ten minutes in July beats a penalty conversation in April, and it is the same reconciliation logic that runs all of paycheck withholding, just applied to the lumpy income.
Your bracket decides whether April refunds or invoices
The flat 22% is a fixed guess meeting a variable truth, and the gap sorts cleanly by bracket. On a $20,000 annual bonus load:
| Your marginal federal bracket | True federal tax on $20,000 | Withheld at 22% | April result |
|---|---|---|---|
| 12% | $2,400 | $4,400 | ~$2,000 refunded |
| 22% | $4,400 | $4,400 | even |
| 24% | $4,800 | $4,400 | ~$400 owed |
| 32% | $6,400 | $4,400 | ~$2,000 owed |
Lower-bracket earners are systematically over-withheld on bonuses and should expect the spring rebate; upper-bracket earners should treat every bonus as arriving with a small invoice attached and set the difference aside on deposit day. The table is also the negotiation cheat sheet: when comparing a bonus-heavy offer against a salary-heavy one, compare after-bracket dollars, not gross packages.
Three questions to ask payroll before a big bonus lands
One: which method will you use, flat or aggregate, since the aggregate method on a combined check can withhold dramatically more up front. Two: can I set a separate 401(k) percentage for this payment, the single highest-leverage checkbox in the whole event. Three: if the offer letter promised a net amount, is it grossed up, and at what assumed rates. Payroll teams answer all three routinely; employees who ask them stop being surprised by deposits, which is the entire modest ambition of withholding literacy.
The December bonus decision tree
When a bonus’s payment date is negotiable at year-end, three questions pick the month. Will next year’s bracket be lower (retirement, a sabbatical, a spouse stopping work)? Then January delays the income into the cheaper year. Is this year’s 401(k) not yet maxed? Then December, with a fat deferral percentage set beforehand, converts the bonus into next spring’s favorite decision. Neither applies? Take the money when offered; a bird in December beats process in January, and the withholding difference is timing, not cost.
Frequently asked questions
Are bonuses taxed higher than salary?
No. They are withheld at a flat 22% federally, which is higher than many people’s marginal rate and lower than some. Actual tax is set by your bracket at filing, identically to salary.
Why did my bonus check lose more than 22%?
FICA (7.65%) and state withholding stack on the federal 22%. A one-third total haircut on the deposit is normal and partially refundable.
Can I ask my employer to withhold less from a bonus?
The flat 22% is fixed when that method is used; your W-4 does not touch it. You can, however, adjust your regular-paycheck W-4 for the rest of the year to compensate in either direction.
Do bonuses affect my tax bracket?
A bonus is ordinary income, so it fills brackets like any other dollars. Only the dollars above a threshold pay the higher rate; the bonus can never reduce your total take-home. If part of a bonus crosses into the next bracket, only that part pays the new rate, and everything beneath it is untouched.
My bonus was huge and withholding still feels light. Possible?
Yes. If your marginal rate is 24% or higher, 22% under-withholds the federal share. Either bank the difference for April or add line 4(c) withholding on regular checks.
Is severance taxed like a bonus?
Severance is supplemental wages under the same withholding rules, 22% flat or aggregate, with FICA applying as usual. So are payouts of unused PTO at departure, which surprises people expecting vacation money to arrive untaxed; it is wages to the end.
Price your next bonus in the bonus tax calculator, see how it interacts with a full year of checks in the paycheck taxes guide, and the rest of the paycheck tools cover the raise-vs-bonus comparison from every angle.