Tax on bonuses is withheld at a flat federal rate, but the actual amount you owe depends on your total income for the year

Your employer withholds federal income tax from a bonus using one of two methods. The most common is the percentage method, where your company withholds a flat 22% of the bonus amount if it's under $1 million. If your bonus is $1 million or more, the withholding jumps to 37%. The second method, called the aggregate method, adds your bonus to your regular paycheck and calculates withholding based on your total pay for that period — this usually results in higher withholding.

The withholding your employer takes out is not the same as the tax you actually owe. If you're in a lower tax bracket than 22%, you may get money back when you file your return. If you're in a higher bracket, you may owe more. State income tax, Social Security tax (6.2% up to the annual wage cap), and Medicare tax (1.45%) also come out of your bonus, and these rates don't change based on your bracket.

Key Takeaways

  • Federal withholding on bonuses under $1 million is a flat 22%; bonuses of $1 million or more are withheld at 37%.
  • The 22% or 37% withheld is not your final tax bill — it's an estimate based on your bonus alone, not your full-year income.
  • Social Security tax (6.2%) and Medicare tax (1.45%) are also withheld from bonuses and are separate from income tax withholding.
  • State income tax rates vary by state and are withheld according to your state's rules, not the federal flat rate.
  • When you file your tax return, the IRS compares what was withheld to what you actually owe based on your total income for the year.

How the 22% federal withholding works

When your bonus is under $1 million, your employer withholds 22% for federal income tax. This is a supplemental wage withholding rate set by the IRS, not your personal tax bracket. If you earn $5,000 as a bonus, your employer withholds $1,100. That $1,100 goes to the IRS as a prepayment of your tax liability.

The 22% rate exists because bonuses are unpredictable and don't fit neatly into your regular paycheck cycle. Rather than calculate your exact tax bracket on the fly, the IRS created a standard rate that works as a reasonable estimate for most people. For some workers, 22% will be too much; for others, it will be too little. The difference gets sorted out when you file your return in the following year.

Why you might owe more or get a refund

If your total taxable income for the year puts you in the 12% tax bracket, but 22% was withheld from your bonus, you've overpaid. When you file your return, the IRS will refund the difference. If you're in the 32% bracket or higher, you've underpaid, and you'll owe the difference when you file.

Your actual tax bracket depends on your filing status and your total income from all sources — wages, self-employment, investments, and the bonus itself. A $10,000 bonus might result in a refund for someone earning $40,000 a year, but a tax bill for someone earning $200,000 a year. The withholding is just a down payment; your return determines the final amount.

Social Security and Medicare taxes on bonuses

In addition to the 22% federal income tax withholding, your employer also withholds Social Security tax at 6.2% and Medicare tax at 1.45% from your bonus. These are separate from income tax and are not refundable — they go into the Social Security and Medicare trust funds.

Social Security tax has an annual wage cap. For 2024, you only pay Social Security tax on the first $168,600 of wages. Once you've earned that amount in a calendar year, no more Social Security tax is withheld from any bonus or paycheck for the rest of that year. Medicare tax has no cap and applies to all wages and bonuses. If you're self-employed, you pay both the employee and employer portions of these taxes, which is roughly double.

State income tax on bonuses

State income tax withholding on bonuses varies widely. Some states follow the federal 22% flat rate; others calculate withholding based on your state tax bracket; still others have no income tax at all. Nine states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire — do not tax wages or bonuses at the state level.

Your employer should withhold state tax according to the state where you work or live, depending on your state's rules. If you work in one state and live in another, you may owe tax to both, and your employer's withholding may not cover your full liability. Check your state's tax authority website or your pay stub to see what rate was withheld.

What happens if your employer uses the aggregate method

Some employers use the aggregate method instead of the flat 22% rate. This method combines your bonus with your regular paycheck for that pay period and calculates withholding as if the combined amount is your normal pay. The result is usually higher withholding than the 22% flat rate, because the combined total pushes you into a higher tax bracket for that period.

For example, if you normally earn $2,000 per paycheck and receive a $5,000 bonus, the aggregate method treats it as a $7,000 paycheck. Withholding is calculated on $7,000, not just the $5,000 bonus. This can result in significant overwithholding, which you'll recover as a refund when you file your return. Ask your payroll department which method they use if you want to estimate your withholding in advance.

Tracking your withholding and planning ahead

Your pay stub will show exactly how much was withheld for federal income tax, Social Security, Medicare, and state tax. Keep these pay stubs, especially if you receive multiple bonuses during the year. When you file your tax return, you'll need the total amount withheld from all sources to calculate whether you're due a refund or owe additional tax.

If you know you'll receive a large bonus and expect to owe more tax than will be withheld, you can ask your employer to withhold extra from your regular paychecks or from the bonus itself. Submit a new Form W-4 to your payroll department requesting additional withholding. This won't change the 22% rate on the bonus, but it can increase withholding on your regular paychecks to cover the shortfall.

Frequently Asked Questions

Will I get a refund if 22% is withheld from my bonus?

You may get a refund, but it depends on your total income for the year and your tax bracket. If your bracket is lower than 22%, you'll likely get some money back when you file. If your bracket is higher than 22%, you'll owe more. File your return to find out.

Is the 22% withholding my final tax bill?

No. The 22% is an estimate withheld by your employer. Your actual tax is calculated based on your total income for the year and your filing status. The difference between what was withheld and what you owe is settled when you file your return.

Do I have to pay state tax on a bonus?

It depends on your state. Nine states have no income tax. Other states withhold state tax on bonuses at rates ranging from 2% to over 10%. Check your pay stub or your state's tax authority website to see what was withheld.

Can I avoid withholding on a bonus?

No. Federal income tax, Social Security tax, and Medicare tax are required to be withheld from bonuses. You cannot opt out. However, you can request additional withholding from other paychecks if you expect to owe more than what will be withheld from the bonus.

What if my bonus is $1 million or more?

Bonuses of $1 million or more are withheld at 37% for federal income tax, plus Social Security and Medicare taxes. The 37% rate applies only to the amount over $1 million if your bonus exceeds that threshold. Like the 22% rate, this is an estimate; your actual tax is determined when you file your return.