Your bonus is taxed as ordinary income, but the amount withheld depends on how your employer processes it
When you receive a bonus, your employer must withhold federal income tax, Social Security tax (6.2%), and Medicare tax (1.45%). The federal income tax withholding is the variable part — it depends on which of two methods your payroll department uses to calculate it, and on the W-4 form you filed with your employer.
If your bonus is paid separately from your regular paycheck, your employer likely uses the percentage method: they withhold a flat 22% for federal income tax on amounts up to $1 million. If your bonus is combined with your regular paycheck and processed together, they use the aggregate method, which calculates withholding based on your total pay for that period and your W-4 settings. The aggregate method often results in less withholding because it spreads the bonus across your normal tax brackets.
State and local income taxes, where they explore, are withheld on top of federal withholding. The total amount taken out can range from roughly 32% to 52% depending on your state, your tax bracket, and which withholding method your employer uses.
Key Takeaways
- Federal income tax withholding on a bonus is either 22% (if paid separately) or calculated using your W-4 details (if combined with regular pay).
- Social Security and Medicare taxes add 7.65% to federal withholding on all bonus income.
- State and local income taxes, where they exist, are withheld in addition to federal amounts.
- The withholding taken out is not necessarily the final tax you owe — you may owe more or receive a refund when you file your return.
The 22% flat withholding on separate bonus payments
When your employer cuts a separate check or makes a separate deposit for your bonus, they typically withhold 22% for federal income tax. This is the IRS default rate for supplemental wages — any payment outside your regular paycheck.
The 22% applies to bonuses up to $1 million in a calendar year. If your total bonuses exceed $1 million, the amount over $1 million is withheld at 37%. This is withholding only, not your actual tax rate. Depending on your income level and tax bracket, you may owe more tax when you file your return, or you may have overpaid and receive a refund.
This method is straightforward for employers and predictable for you, but it often results in overwithholding because 22% is higher than the marginal rate for most workers.
How the aggregate method works when bonus is combined with regular pay
If your employer adds the bonus to your regular paycheck in the same pay period, they use the aggregate method. They calculate withholding on your total pay for that period using your W-4 form, then subtract what was already withheld from your regular pay.
Under this method, the bonus may be taxed at your actual marginal rate rather than a flat 22%. If you earn $60,000 a year and receive a $5,000 bonus in one paycheck, the aggregate method treats it as $65,000 in income for that period, calculates withholding on that amount, and subtracts what you already paid. This often results in less total withholding than the 22% method.
The aggregate method depends on your W-4 settings. If you claimed zero allowances or dependents, withholding will be higher. If you claimed multiple dependents or adjusted your W-4 for other income, withholding may be lower.
Social Security and Medicare taxes on bonuses
In addition to federal income tax withholding, your bonus is subject to Social Security tax at 6.2% and Medicare tax at 1.45%, for a combined 7.65%. These are withheld on all bonus income with no exceptions.
Social Security tax stops once you reach the wage base limit for the year — in 2024, that limit is $168,600. If you have already earned that amount in regular pay, Social Security tax is not withheld on your bonus. Medicare tax has no wage limit and is withheld on all income.
Self-employed people pay both the employee and employer portions of these taxes (15.3% total), but employees have only the employee portion withheld from their bonus.
State and local income tax withholding on bonuses
Most states that have an income tax withhold it on bonuses at the same rate as regular income. Some states use a flat supplemental wage rate similar to the federal 22%, while others calculate it based on your W-4 or state equivalent.
States without income tax — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — do not withhold state income tax on bonuses. New Hampshire and Tennessee tax only dividend and interest income, not wages.
If you live in a state with local income tax (such as New York City, Columbus, or Philadelphia), your employer withholds that as well. The total state and local withholding can add 3% to 13% depending on where you live and your income level.
What happens if too much or too little is withheld
The amount withheld from your bonus is an estimate. When you file your tax return, you reconcile what was actually withheld against what you actually owe based on your total income, deductions, and credits for the year.
If more was withheld than you owe, you receive a refund. If less was withheld, you owe the difference. The 22% flat withholding on separate bonuses often results in overwithholding for most workers, which means you may see a refund when you file — but that refund is your own money returned to you, not a benefit.
You cannot change the withholding on a bonus after it is paid. If you expect a large bonus and want to adjust your withholding to avoid overwithholding, you can file a new W-4 before the bonus is paid, but most employers process bonuses on a fixed schedule and may not have time to implement a change.
Bonuses and your overall tax situation
A large bonus can push you into a higher tax bracket for that year, which affects your overall tax liability. The withholding taken out of the bonus itself does not account for this — it is calculated in isolation using the 22% method or your W-4 settings.
If you receive a bonus late in the year, you may want to review your W-4 for the following year to adjust withholding on regular pay, since the bonus withholding is already done. If you receive bonuses regularly, you can adjust your W-4 to account for the extra income and avoid a large refund or tax bill at filing time.
Bonuses are also subject to the same deductions as regular income — you cannot opt out of tax withholding on a bonus, and there are no special bonus tax rates or exemptions.
Frequently Asked Questions
Why is 22% withheld on my bonus if my tax bracket is lower?
The 22% is a flat federal withholding rate set by the IRS for supplemental wages paid separately from regular paychecks. It is not based on your actual tax bracket. Most workers in the 12% or 10% brackets overpay when this method is used, and they recover the difference as a refund when they file their tax return.
Can I claim my bonus on my taxes to reduce what I owe?
No. Your bonus is already counted as income on your W-2 form, and the withholding taken out is credited toward your tax liability. You cannot deduct or exclude a bonus from your taxable income. You can only reduce your tax liability through deductions and credits you are may have access to to claim.
Is my bonus taxed differently if I am paid biweekly versus monthly?
If your bonus is paid separately, the withholding method (22% flat) is the same regardless of your regular pay schedule. If your bonus is combined with a regular paycheck, the aggregate method applies, and the calculation depends on your pay period — but the end result is usually similar because the withholding is based on your annual income, not the frequency of pay.
What if my employer withheld too much tax from my bonus?
You will recover the overpayment as a refund or credit when you file your tax return for the year. You do not need to do anything when ready — the withholding is recorded on your W-2, and your tax return will reconcile what was withheld against what you actually owe.
Do I have to pay taxes on a signing bonus or referral bonus?
Yes. All bonuses — signing bonuses, referral bonuses, performance bonuses, and holiday bonuses — are taxed as ordinary income. The same withholding rules explore regardless of the reason for the bonus.