Your bonus is taxed as ordinary income, not at a special rate
The percentage of your bonus that goes to taxes depends on your tax bracket, not on the fact that it is a bonus. Federal income tax, Social Security tax, Medicare tax, and possibly state and local taxes all explore to bonus money the same way they explore to regular wages. There is no separate "bonus tax" that takes a fixed percentage — what you owe depends on your total income for the year and where you live.
Your employer will withhold taxes from your bonus check using one of two methods. The most common method treats your bonus as a separate paycheck and withholds a flat 22 percent for federal income tax (or 37 percent if your bonus is over $1 million). The second method adds your bonus to your regular pay and withholds based on your tax bracket for that combined amount. The second method is usually more accurate to what you will actually owe, but many employers use the first method because it is simpler.
The withholding your employer takes out is not the same as the tax you actually owe. Withholding is an estimate. When you file your tax return, you may get a refund if too much was withheld, or you may owe more if too little was withheld.
Key Takeaways
- Your bonus is taxed at your ordinary income tax rate, which ranges from 10 percent to 37 percent depending on your total income and filing status.
- Your employer will withhold either a flat 22 percent for federal income tax or will calculate withholding based on your tax bracket — the second method is usually more accurate.
- Social Security tax (6.2 percent) and Medicare tax (1.45 percent) also come out of your bonus if you have not yet hit the Social Security wage cap for the year.
- State and local income taxes explore to bonuses in most states, adding another 2 to 13 percent depending on where you live.
- The amount withheld from your bonus is an estimate; you may owe more or receive a refund when you file your return.
Federal income tax brackets and your bonus
Your federal income tax rate depends on your total income for the year, not just your bonus. The IRS uses tax brackets — ranges of income that are taxed at the same rate. For 2024, the federal rates are 10, 12, 22, 24, 32, 35, and 37 percent. A bonus pushes you into a higher bracket only if your total income crosses a bracket threshold.
If you earn $60,000 in regular salary and receive a $10,000 bonus, your total taxable income is $70,000. That $70,000 is not all taxed at one rate. The first portion is taxed at 10 percent, the next portion at 12 percent, and so on, until you reach the top of your income. Your bonus is taxed at whatever bracket it falls into when added to your regular income.
Your filing status (single, married filing jointly, head of household, or married filing separately) determines the income ranges for each bracket. A married couple filing jointly has wider brackets than a single filer, so the same bonus may be taxed at a lower rate.
Social Security and Medicare taxes on bonuses
Social Security tax is 6.2 percent of your wages, and Medicare tax is 1.45 percent. Both come out of your bonus unless you have already hit the Social Security wage cap for the year. In 2024, the cap is $168,600 — once your total wages (including bonuses) reach that amount, no more Social Security tax is withheld for the rest of the year. Medicare tax has no cap and applies to all wages.
If you receive your bonus early in the year and your regular salary is low, you will pay both Social Security and Medicare tax on the full bonus amount. If you receive your bonus late in the year after already earning above the Social Security cap, you will pay only the 1.45 percent Medicare tax.
Self-employed people pay both the employee and employer portions of these taxes (15.3 percent total), but employees see only the employee portion withheld from their paychecks.
State and local income taxes
Most states tax bonuses as ordinary income at rates ranging from 2 to 13 percent, depending on the state. Nine states have no income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only dividends and interest, not wages). If you live in a state with income tax, your employer will withhold state tax from your bonus in addition to federal tax.
Some cities and counties also tax income. New York City, for example, taxes residents at rates up to 3.876 percent. Columbus, Ohio taxes residents at 2.5 percent. If you live in a locality with an income tax, that amount comes out of your bonus as well.
The total state and local tax on your bonus can range from zero (if you live in a no-income-tax state) to over 13 percent (if you live in a high-tax state and a taxing city). This is in addition to federal and payroll taxes.
Why withholding on bonuses is often too high
When your employer uses the flat 22 percent withholding method, they are treating your bonus as if it is your only income for the year. This often results in over-withholding because your bonus is added to your regular salary, and the combined amount may not be taxed at 22 percent.
Example: You earn $50,000 per year in salary and receive a $5,000 bonus. Your employer withholds 22 percent of the bonus ($1,100) for federal income tax. But your total income is $55,000, which puts you in the 12 percent bracket for most of that income. You likely over-paid federal income tax by several hundred dollars.
The more accurate method is for your employer to add the bonus to your regular paycheck and calculate withholding on the combined amount. This method is less common because it requires more calculation, but it usually results in withholding that is closer to what you will actually owe.
What happens when you file your tax return
The withholding your employer takes from your bonus is credited toward your total tax bill for the year. When you file your return, you report all your income (salary, bonus, and any other income) and calculate your actual tax liability. If the total withholding from all your paychecks and bonuses is more than you owe, you receive a refund. If it is less, you owe the difference.
If your bonus pushed you into a higher tax bracket, you may owe more than was withheld. If your bonus was withheld at 22 percent but your actual rate is lower, you will receive a refund. The only way to know for certain is to file your return or use tax software to calculate your liability.
How to estimate your bonus tax
To estimate the federal income tax on your bonus, add the bonus amount to your expected total income for the year and find your tax bracket. Multiply the portion of your bonus that falls in each bracket by that bracket's rate. Add Social Security tax (6.2 percent if you have not hit the cap) and Medicare tax (1.45 percent). Then add your state and local income tax rates.
This is an estimate only and does not account for deductions, credits, or other factors that affect your actual tax bill. For a more precise calculation, use IRS tax software or consult a tax professional. Many employers also offer a paycheck calculator on their benefits portal that can show you the estimated withholding on a bonus.
Frequently Asked Questions
Is bonus tax different from regular income tax?
No. A bonus is taxed as ordinary income at your regular tax bracket rate. The only difference is the withholding method your employer uses — they may withhold a flat 22 percent instead of calculating based on your bracket. This flat withholding is often higher than your actual tax rate, but it is not a separate tax.
Can I avoid taxes on my bonus?
No. Bonuses are wages and are subject to federal income tax, Social Security tax, Medicare tax, and state and local income taxes. There is no legal way to avoid these taxes, though you may be able to reduce your tax bill through deductions or contributions to retirement accounts.
Why did my bonus withholding seem too high?
Your employer likely used the flat 22 percent withholding method, which assumes your bonus is your only income. Since your bonus is added to your regular salary, the combined amount is usually taxed at a lower rate. You may receive a refund when you file your return if too much was withheld.
Do I have to pay taxes on a signing bonus?
Yes. A signing bonus is treated as wages and is subject to all the same taxes as a regular bonus — federal income tax, Social Security tax, Medicare tax, and state and local taxes. Your employer will withhold taxes from the signing bonus just as they would from any other bonus.
What if I get a bonus in December — do I pay taxes on it this year?
Yes. Any bonus you receive in a calendar year is taxed in that year, regardless of when you actually receive the money. If you receive a bonus in December, it counts toward your 2024 income and is reported on your 2024 tax return.