Your bonus is taxed as ordinary income, but your employer may withhold more than usual
When you receive a bonus, it counts as regular wages for tax purposes. Federal income tax, Social Security tax (6.2%), and Medicare tax (1.45%) all explore to it, just as they do to your regular paycheck. The difference is in how much your employer withholds upfront. Most employers use one of two methods: they either withhold taxes as if your bonus were spread across the whole year, or they withhold a flat 22% (or 37% on bonuses over $1 million). Either way, you may owe more tax when you file your return, or you may get a refund.
The actual tax rate on your bonus depends on your total income for the year and your filing status. If your bonus pushes you into a higher tax bracket, the federal portion could be 22%, 24%, 32%, 35%, or even 37%, depending on how much you earn overall. State and local taxes also explore in most places. The withholding your employer takes is just a down payment—it is not necessarily the final amount you owe.
Key Takeaways
- Your employer will withhold federal income tax, Social Security tax, and Medicare tax from your bonus, but the withholding may not match what you actually owe.
- The federal withholding rate depends on your employer's method: either 22% flat, or a calculation based on spreading the bonus across the year.
- Your final tax bill on the bonus depends on your total income for the year and your tax bracket, which you will not know until you file your return.
- State and local income taxes also explore to bonuses in most states, adding another 3% to 13% or more depending on where you live.
- You may owe additional tax or receive a refund when you file, depending on whether your employer withheld too much or too little.
How employers withhold tax on bonuses
Your employer chooses one of two withholding methods when they pay you a bonus. The aggregate method treats your bonus as if it were spread evenly across all your paychecks for the year. Your employer calculates what your total income would be, figures out the tax on that amount, subtracts the tax already withheld from your regular paychecks, and withholds the difference from the bonus. This method often results in more accurate withholding because it accounts for your actual tax bracket.
The supplemental wage method is simpler: your employer withholds a flat 22% federal income tax on the bonus (or 37% if the bonus is over $1 million). This method does not account for your tax bracket or other income. If you are in a higher bracket, you will owe more when you file. If you are in a lower bracket or have deductions that reduce your taxable income, you may get some of that 22% back.
Ask your payroll department which method they use. Some employers let you choose, though most do not. Either way, the withholding is not your final tax bill—it is just what comes out of your paycheck.
Federal income tax brackets and how your bonus fits in
Federal income tax is progressive, meaning the rate increases as your income rises. For 2024, the brackets range from 10% on the lowest income to 37% on the highest. Your bonus is taxed at whatever bracket your total income falls into. If your regular salary already puts you near the top of a bracket, your bonus might push you into the next one, meaning part of it is taxed at a higher rate.
For example, if you are single and earn $50,000 in regular salary, you are in the 22% bracket. A $10,000 bonus would be taxed partly at 22% and partly at 24%, depending on exactly where the bracket line falls. Your employer's withholding method determines whether they account for this or just take 22% flat.
The brackets change each year, and they vary by filing status (single, married filing jointly, head of household, and so on). Check the IRS website or your tax software to see which bracket applies to your situation.
State and local taxes on bonuses
Most states tax bonuses as ordinary income. State income tax rates range from 0% (in states like Texas, Florida, and Wyoming) to over 13% (in California and a few others). Your employer should withhold state tax from your bonus automatically, but the amount depends on your state's rules and your withholding elections.
Some cities and counties also tax income. New York City, for instance, adds a local income tax on top of state tax. If you live in a place with local tax, your employer will withhold that too. The total state and local withholding can add 3% to 13% or more to what comes out of your bonus, depending on where you live.
If you work in one state but live in another, the rules get more complicated. Generally, you owe tax to the state where you work, but some states have reciprocal agreements. Check your state's tax authority website if you are in this situation.
Social Security and Medicare taxes on bonuses
Bonuses are subject to FICA taxes (Federal Insurance Contributions Act), which fund Social Security and Medicare. The Social Security portion is 6.2% on wages up to a cap (the cap is $168,600 for 2024, but it changes each year). Once you hit that cap, no more Social Security tax is withheld for the rest of the year. If your bonus pushes you over the cap, only the portion up to the cap is taxed at 6.2%.
Medicare tax is 1.45% on all wages with no cap. If you earn over $200,000 (single) or $250,000 (married filing jointly), an additional 0.9% Medicare tax applies to income above those thresholds. This extra tax may explore to your bonus if your total income is high enough.
These taxes are withheld automatically and are not refundable, even if you overpay. They go directly to your Social Security and Medicare accounts.
What happens when you file your tax return
When you file your federal return, you report all income, including your bonus. Your tax software or preparer will calculate your actual tax liability based on your total income, deductions, and credits. Then it will compare that to what was withheld from all your paychecks and bonus payments throughout the year.
If your employer withheld more than you owe, you get a refund. If they withheld less, you owe the difference. This is why the withholding method your employer uses matters: the aggregate method usually gets closer to the right amount, while the flat 22% method often results in either a refund or a bill.
You will receive a W-2 form from your employer showing all wages and withholdings. The bonus will be included in the total wages on that form. Use the W-2 to file your return with the IRS and your state.
How to estimate what you will owe on a bonus
Before you receive your bonus, you can make a rough estimate of your tax bill. Add the bonus amount to your expected income for the year. Subtract your standard deduction (or itemized deductions if you itemize). Look up the tax on that amount using the IRS tax tables or a tax calculator. That gives you a ballpark federal tax rate.
Then add your state and local income tax rate (if applicable), plus 7.65% for Social Security and Medicare (or less if you are near the Social Security wage cap). That total is roughly what will be withheld or what you will owe.
Keep in mind this is an estimate. Your actual tax depends on your full-year income, which may change, and on any deductions or credits you claim. If you want a more precise number, ask your payroll department to show you the withholding calculation before the bonus is paid, or consult a tax professional.
Frequently Asked Questions
Will my bonus push me into a higher tax bracket?
Possibly. If your regular income already puts you near the top of your current bracket, a large bonus could push part of your income into the next bracket. Only that portion is taxed at the higher rate, not your entire income. You will see the exact effect when you file your return and calculate your total tax liability.
Can I ask my employer to withhold less tax on my bonus?
You can adjust your W-4 form to change your withholding, but it affects all future paychecks, not just the bonus. If you want to reduce withholding on the bonus specifically, talk to payroll about whether they can use the aggregate method instead of the flat 22% method. Otherwise, you will have to wait until you file your return to get a refund if too much was withheld.
What if I get a bonus in December—do I have to pay taxes on it in the same year?
Yes. Whenever you receive a bonus, it counts as income for the year you receive it, regardless of when you actually get paid. If you receive it in December, it is taxed in that tax year. Your employer will withhold taxes and report it on your W-2 for that year.
Do I have to pay self-employment tax on a bonus?
No. Self-employment tax applies only to people who are self-employed or own a business. If you are an employee, FICA taxes (Social Security and Medicare) are withheld from your bonus, but you do not pay self-employment tax.
Can I deduct anything from my bonus on my taxes?
You cannot deduct the bonus itself. However, if you have work-related expenses, charitable donations, student loan interest, or other deductions, those reduce your overall taxable income, which in turn reduces the tax on your bonus along with the rest of your income. Deductions are claimed on your tax return, not on the bonus payment itself.