Bonuses are taxed the same rate as your regular income, but they often feel higher because of how your employer withholds the money

Your bonus is not taxed at a higher rate than your salary. Federal income tax brackets treat bonus money the same way they treat regular wages — the tax percentage depends on your total annual income, not the source. However, your employer usually withholds more tax from a bonus check than you might expect, which makes it look like bonuses are taxed differently.

The confusion comes from withholding, not the actual tax rate. When you receive a bonus, your payroll department has to guess how much federal income tax to hold back. They typically use one of two methods, and one of them results in much larger withholdings. Understanding which method your employer uses, and what happens when you file your tax return, explains why your bonus paycheck is smaller than you calculated.

Key Takeaways

  • Bonuses are taxed at the same federal income tax rates as regular wages, based on your total yearly income.
  • Your employer withholds tax from bonuses using either the "aggregate" method (combining it with regular pay) or the "percentage" method (withholding a flat 22% or 37%).
  • The percentage method usually results in more tax withheld upfront, but you may receive a refund when you file your return if the withholding was too high.
  • State and local income taxes, Social Security tax, and Medicare tax are also withheld from bonuses at the same rates as regular pay.
  • Your actual tax bill depends on your total income for the year, not on when you received the money.

How the two withholding methods work

The aggregate method is the more accurate approach. Your employer adds the bonus to your regular paycheck for that pay period and calculates withholding as if that combined amount is your normal pay. If you earn $2,000 every two weeks and receive a $5,000 bonus, your employer treats it as a $7,000 paycheck and withholds based on that. This method usually results in the correct amount of tax withheld, or close to it.

The percentage method is simpler for payroll but results in higher withholding. Your employer withholds a flat 22% federal income tax from the bonus, or 37% if your bonus is over $1 million in a single year. This flat rate does not account for your actual tax bracket or other income, so it often withholds more than you will actually owe. For example, if you are in the 12% tax bracket and receive a $10,000 bonus, the percentage method withholds $2,200, but your actual tax liability might be only $1,200.

Your employer chooses which method to use, and different companies have different policies. Some use the aggregate method for regular bonuses and the percentage method for large year-end bonuses. You can ask your payroll department which method they use, but you cannot force them to switch.

Why you might get money back at tax time

If your employer used the percentage method and withheld more tax than you actually owe, you will see that overpayment returned to you when you file your tax return. The IRS does not care which withholding method was used — it only cares about your total income for the year and your actual tax liability. When you file, you report all income (salary, bonuses, and everything else) and calculate what you actually owe. If more was withheld than you owe, you get a refund.

This is why some people receive a larger refund in years when they get a bonus. The bonus itself is not taxed higher; the withholding was just more conservative, and the overpayment comes back to you later.

Social Security and Medicare taxes on bonuses

In addition to income tax withholding, your bonus is subject to Social Security tax (6.2%) and Medicare tax (1.45%), just like your regular paycheck. These are not optional and do not change based on your income level or tax bracket. If you earn over $200,000 as a single filer (or $250,000 if married filing jointly), an additional 0.9% Medicare tax applies to the bonus as well.

These payroll taxes are withheld automatically and are separate from income tax. They are not refundable, even if you overpay. Your employer also pays a matching amount (6.2% Social Security and 1.45% Medicare), but that does not affect your take-home pay.

State and local taxes on bonuses

If you live in a state with income tax, your bonus is taxed at your state's rate just like your regular income. Some states have a flat tax rate, while others use brackets similar to federal tax. A few states (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming) do not have state income tax, so residents of those states do not have state withholding on bonuses.

Local income taxes vary widely. Some cities and counties tax bonuses, others do not. Your payroll department should withhold the correct amount based on where you work and where you live, but it is worth checking your pay stub to confirm the withholding is correct.

What your actual tax rate on a bonus really is

Your bonus is taxed at your marginal tax rate — the rate that applies to your highest income. If you are single and earned $50,000 in salary, you are in the 12% federal tax bracket. A $10,000 bonus pushes your total income to $60,000, and that bonus is taxed at 12% (plus Social Security, Medicare, and any state or local taxes). You do not jump to a higher bracket just because the money came as a bonus.

However, if your bonus is large enough to push you into a higher bracket, the portion that crosses into the new bracket is taxed at the higher rate. For example, if you earn $50,000 and receive a $15,000 bonus, the first $10,000 of the bonus might be taxed at 12%, and the remaining $5,000 at 22%, depending on where the bracket line falls. This is how the tax system works for all income, not just bonuses.

How to estimate your bonus after taxes

To estimate what you will take home from a bonus, add it to your expected annual income and find your federal tax bracket for the year. Multiply the bonus by your marginal rate, then add 6.2% for Social Security tax (up to the annual cap of $168,600 in wages for 2024), 1.45% for Medicare tax, and your state and local rates if applicable.

For example, a $5,000 bonus for someone in the 22% federal bracket with 5% state tax would result in roughly $5,000 × (0.22 + 0.062 + 0.0145 + 0.05) = $1,646 in total withholding, leaving about $3,354 in your pocket. The actual amount depends on whether you have already hit the Social Security wage cap and on your specific state and local taxes.

Keep in mind that this is an estimate of withholding, not your final tax bill. Your actual liability is calculated when you file your return and may be different.

Frequently Asked Questions

Is my bonus taxed at 37%?

No. The 37% rate applies only if your bonus exceeds $1 million in a single year and your employer uses the percentage withholding method. For most bonuses under $1 million, the flat withholding rate is 22%. This is withholding, not your actual tax rate — your real rate depends on your total income and tax bracket.

Why did my bonus withholding seem higher than my salary withholding?

Your employer likely used the percentage method on the bonus (22% or 37% flat) instead of the aggregate method. The percentage method withholds more upfront but does not account for your actual tax bracket. You may receive a refund of the overpayment when you file your tax return.

Do I have to pay taxes on a signing bonus or referral bonus?

Yes. All bonuses — signing bonuses, referral bonuses, performance bonuses, and year-end bonuses — are treated as wages and are subject to federal income tax, Social Security tax, Medicare tax, and state and local taxes where applicable.

What if my bonus pushes me into a higher tax bracket?

Only the portion of your income that falls into the higher bracket is taxed at that higher rate. The rest of your income is still taxed at the lower rate. Receiving a bonus does not cause all of your income to be taxed at a higher rate.

Can I avoid taxes on a bonus by deferring it to next year?

No. The year you receive the bonus is the year you owe tax on it, regardless of when you actually spend the money. Deferring the bonus to a future year would change which year's tax return it appears on, but you cannot avoid the tax itself.