A $10,000 bonus arrives and $6,000 lands in your account. It looks like a 40% tax on money you earned, and the standard reaction is that bonuses must be taxed punitively.
They aren’t. There is no special bonus tax rate. A bonus is ordinary income, taxed at exactly the same rates as your salary. What differs is the withholding, and that distinction explains the whole thing.
Withholding is a prepayment, not a tax
Tax is what you ultimately owe, calculated on your total income for the year when you file. Withholding is money your employer sends to the IRS on your behalf throughout the year, as an estimate of that eventual bill.
If withholding exceeds your actual tax, you get a refund. If it falls short, you pay the difference. The withholding rate has no effect on what you owe, only on when the money moves.
So when a bonus is withheld at a high rate, nothing has been taken from you permanently. It has been prepaid.
The flat supplemental rate
The IRS classifies bonuses as supplemental wages, along with commissions, severance, back pay and prizes. Employers may withhold on them using the percentage method, and most do because it is simple:
- 22% flat on supplemental wages up to $1 million in a calendar year
- 37% mandatory on anything above $1 million
That 22% is applied regardless of your actual tax situation. It is a blunt default and involves no calculation about you.
Why the deposit still looks small
Federal withholding is only part of what comes out. On a $10,000 bonus:
| Deduction | Rate | Amount |
|---|---|---|
| Federal withholding | 22% | $2,200 |
| Social Security | 6.2% | $620 |
| Medicare | 1.45% | $145 |
| State withholding | varies | $0 to $1,000 |
| Typical total | ~30-40% | $2,965 to $3,965 |
FICA is not optional and the supplemental rule doesn’t change it. It applies to the bonus exactly as it applies to salary. Add state withholding, which many states also apply at a flat supplemental rate, and 30-40% gone is entirely normal.
None of these is a penalty. Every one of them would have come out of the same money if it had arrived as salary.
Whether you come out ahead or behind
At filing, the bonus is added to your other income and taxed at your normal marginal rate. Then all your withholding, salary and bonus together, is subtracted from your total tax. The difference is your refund or your bill.
If your marginal rate is below 22%, the flat withholding over-collected and you get some of it back. A single filer earning $45,000 is in the 12% bracket, so their $10,000 bonus was withheld at nearly double the rate it will eventually be taxed at. They are owed roughly $1,000 back.
If your marginal rate is 22%, it roughly balances out.
If your marginal rate is above 22% (24%, 32%, 35%), the flat withholding under-collected, and you will owe the difference at filing. People are least prepared for this case, because the bonus felt heavily taxed at the time. A $20,000 bonus for someone in the 32% bracket is short by about $2,000.
Plan for that. The bonus that looked over-taxed in March can produce a bill in April of the following year.
The aggregate method
Some employers use an alternative. They add the bonus to your regular paycheck, work out the withholding on the combined amount as though that were your normal pay, and subtract what would normally be withheld.
Because payroll systems annualise, a large bonus in one cheque makes the system think you now earn a great deal more than you do, and the withholding can be startling, sometimes 40% or more.
This is an even clearer timing artefact than the flat method, and it corrects completely at filing.
What you can actually do
Adjust your W-4 if you get a large bonus every year and it consistently leaves you owing. The extra-withholding field exists for this. If you consistently over-withhold, you are giving the government an interest-free loan.
Increase 401(k) or HSA contributions in the period the bonus lands, if your plan allows it. Pre-tax contributions come off the top of your income, where your highest marginal rate applies, so they are worth more against bonus income than against ordinary pay. Some employers let you set a separate deferral rate for bonuses specifically.
Don’t turn down a bonus. As with marginal rates generally, more gross income always means more net income. The withholding is uncomfortable but not punitive.
Set aside the difference if your marginal rate is above 22%. Roughly 10% of the bonus, held back, covers the gap that will appear at filing.
Summary
There is no bonus tax. Supplemental wages get a flat 22% federal withholding, plus the FICA and state withholding that any pay attracts. It all reconciles when you file: you get money back if your rate is under 22%, and you owe if it is over.
The bonus tax calculator shows the withholding on a specific bonus and what it means against your bracket. The withholding rules used are documented on the methodology page.