Bonuses are taxed as regular income, but your employer may withhold taxes differently than they do for your salary

When you receive a bonus, the IRS treats it as supplemental wages — money on top of your regular pay. Your employer must withhold federal income tax, Social Security tax (6.2%), and Medicare tax (1.45%) from the bonus amount. The withholding rate depends on how your employer processes the bonus and how much you earn overall.

The key difference from your regular paycheck is the withholding method. Most employers use one of two approaches: they either withhold a flat 22% federal tax (or 37% if your bonus exceeds $1 million), or they combine your bonus with your regular pay and calculate withholding based on your total income for that period. The second method is more accurate but less common.

You will owe the same total tax on a bonus as you would on any other income at your tax bracket. The withholding your employer takes is just an estimate. When you file your tax return in April, you may owe more tax, get a refund, or break even — depending on your actual tax situation for the year.

Key Takeaways

  • Your employer withholds federal income tax, Social Security tax, and Medicare tax from bonuses, though the federal withholding rate may differ from your regular paycheck.
  • A flat 22% federal withholding is common for bonuses, but this is not your final tax bill — it is just an estimate.
  • The actual tax you owe on a bonus depends on your total income for the year and your tax bracket, which you will settle when you file your return.
  • State and local taxes also explore to bonuses in most places, and your employer will withhold those separately if required.

How the 22% withholding works

When your employer withholds 22% federal tax on a bonus, they are using a flat supplemental wage rate set by the IRS. This is a shortcut — it is not based on your actual tax bracket. If you earn $50,000 a year, your tax bracket is 12%, but your bonus may still have 22% withheld. If you earn $200,000 a year, your bracket is 24%, but 22% is still withheld.

This flat rate is meant to be a reasonable middle ground. For many people, 22% over-withholds slightly, which means you get a refund when you file your return. For others, especially high earners, it under-withholds, and you owe more tax in April. The amount depends on your actual income, deductions, and credits for the year.

The 37% rate applies only if your bonus exceeds $1 million in a single payment. This is rare and applies to executives and athletes receiving large lump sums.

When your employer combines the bonus with regular pay

Some employers add your bonus to your regular paycheck and recalculate your withholding for that pay period as if you earn that amount every period. If you earn $3,000 every two weeks and receive a $5,000 bonus, your employer treats it as a $8,000 paycheck and withholds based on that.

This method is more accurate because it accounts for your actual tax bracket. However, it can over-withhold if the bonus is a one-time payment — your employer is calculating as if you earn that much every period, which you do not. You will likely get a refund in April.

Ask your payroll department which method they use. Some employers let you choose, though most do not.

State and local taxes on bonuses

In addition to federal tax, most states tax bonuses as regular income. Your employer will withhold state income tax from the bonus if your state has one. States like California, New York, and Illinois withhold on bonuses the same way they do on regular pay. States with no income tax — Florida, Texas, Wyoming, and others — do not withhold state tax on bonuses.

Some cities also tax income. New York City, for example, withholds local income tax on bonuses for residents and people who work in the city. Philadelphia and a few other cities do the same. Your employer should withhold these taxes automatically if you live or work in a taxing jurisdiction.

Check your pay stub to see what state and local taxes were withheld. If nothing was withheld and you live in a state with income tax, contact your payroll department — they may have made an error.

Why your withholding may not equal your actual tax bill

The withholding your employer takes is a prepayment of tax, not your final bill. Your actual tax depends on your total income for the entire year, your filing status, and the deductions and credits you claim.

If you received a large bonus and your employer withheld 22%, you might owe more tax because your bonus pushed you into a higher bracket. Or you might get a refund because you have deductions or credits that reduce your tax. You will not know until you file your return and calculate your actual tax liability.

Keep pay stubs from every bonus you receive. When you file your return, you will need to report the gross bonus amount and the taxes withheld. Your tax software or preparer will use this information to calculate what you actually owe.

Bonuses and self-employment tax

If you are a W-2 employee, your employer withholds Social Security tax (6.2%) and Medicare tax (1.45%) from your bonus, and they pay an equal amount themselves. You do not owe additional self-employment tax.

If you are self-employed or a contractor, bonuses you pay yourself are not subject to withholding. You must set aside money for federal, state, and self-employment taxes on your own. Self-employment tax is 15.3% (12.4% Social Security plus 2.9% Medicare), plus federal and state income tax. Many self-employed people make quarterly estimated tax payments to avoid a large bill in April.

What to do if too much or too little was withheld

If your employer withheld too much tax on your bonus, you will get a refund when you file your return. If too little was withheld, you will owe money. You can adjust your withholding for future paychecks by updating your W-4 form with your employer.

To estimate whether you will owe or get a refund, add up all your income for the year (salary, bonuses, side income, investment income) and subtract your deductions. Compare that to the total tax withheld from all your paychecks. If withholding is higher, you will get a refund. If it is lower, you will owe.

You can also use the IRS Withholding Estimator tool on irs.gov to get a rough idea. It asks questions about your income and deductions and tells you whether you are on track or need to adjust your W-4.

Frequently Asked Questions

Is a bonus taxed differently than regular salary?

A bonus is taxed at the same rate as your regular income — your tax bracket does not change. The difference is in how your employer withholds the tax upfront. Bonuses often use a flat 22% federal withholding instead of calculating based on your full-year income, which can result in over- or under-withholding.

Can I avoid taxes on a bonus?

No. Bonuses are income and are subject to federal, state, and local taxes just like salary. Your employer is required to withhold taxes from the bonus. You cannot opt out of withholding, though you can adjust it for future paychecks by changing your W-4.

What if my bonus is paid in stock or other property?

Stock bonuses are taxed based on their fair market value on the day you receive them. Your employer will withhold taxes on that value. If the stock price rises after you receive it, the gain is taxed separately when you sell. If it falls, you cannot deduct the loss unless you sell at a loss.

Do I have to report a bonus on my tax return?

Yes. Your employer reports the bonus on your W-2 form as part of your total wages. You report your W-2 income on your tax return. The IRS matches your return to your W-2, so you must report it even if you do not want to.

Will a bonus affect my tax refund or what I owe?

Yes. A bonus increases your total income for the year, which can change your tax bracket, reduce certain deductions or credits, or push you into a higher bracket. Whether you get a larger refund or owe more depends on how much tax was withheld on the bonus and your overall tax situation.