Why Is My Bonus Taxed So High?
The two ways employers withhold tax on bonuses, why it looks like more than your paycheck, and how to get the extra back.
- Updated
- By the PaydayMath team · how we work
You were promised a $3,000 bonus and the deposit was closer to $2,300. It feels like the government took a bigger bite than it does from your paycheck. In reality, a bonus is taxed exactly like the rest of your pay. What is different is how much your employer withholds up front, and that difference is settled when you file your tax return.
Bonuses are "supplemental wages"
The IRS calls bonuses, commissions, severance and similar one-time payments supplemental wages. Employers have two ways to withhold federal income tax on them, both described in IRS Publication 15.
1. The percentage method (most common)
The employer withholds a flat 22% for federal income tax, no matter what your regular tax bracket is. If your supplemental wages for the year pass $1 million, the part above $1 million is withheld at 37%. This works only when the bonus is paid separately from your regular wages, or listed as a separate amount.
On top of that come Social Security (6.2%) and Medicare (1.45%), which apply to bonuses the same way they apply to your salary, plus state income tax where it exists. On a $3,000 bonus in a state with no income tax, that adds up to $889.50 withheld, leaving $2,110.50.
2. The aggregate method
Some employers add the bonus to a regular paycheck and withhold as if that combined amount were what you earn every pay period. Payroll tables assume that big paycheck repeats all year, so they put you in a higher bracket for that one check. This is the method that produces the most painful surprises.
Example: you earn $2,000 every two weeks and a $3,000 bonus is added to one paycheck. The payroll system sees $5,000 for two weeks, which looks like a $130,000 salary, and withholds at that level for the whole check.
Why it is not really "more tax"
Withholding is a prepayment. When you file your return, all of your income for the year, salary and bonus together, goes through the same brackets. If the 22% withheld on your bonus is higher than your actual tax rate, the extra comes back as part of your refund. If you are in the 24% bracket or higher, 22% may actually be too little, and you could owe a little at tax time.
| Your top federal bracket | Withheld on bonus | What happens at tax time |
|---|---|---|
| 10% or 12% | 22% | Likely part of it comes back as a refund |
| 22% | 22% | About right |
| 24% to 37% | 22% | You may owe the difference |
Social Security stops at a limit
Social Security tax applies only up to a yearly wage limit ($184,500 in 2026). If your earnings for the year have already passed it, no Social Security is taken from a bonus, and you keep 6.2% more. Medicare has no limit and adds 0.9% on wages above $200,000.
How to keep more of your bonus
- Put part of it in your 401(k). A traditional 401(k) contribution from the bonus lowers federal (and most state) income tax withholding. Social Security and Medicare still apply. Ask payroll before the bonus is paid; many plans let you choose a separate percentage for bonuses.
- Ask which method is used. If your employer uses the aggregate method, asking for the bonus to be paid separately at the flat 22% can make the deposit closer to what you expect.
- Review your W-4. If you always get a large refund, your regular withholding may be higher than it needs to be. The IRS Tax Withholding Estimator helps you set it.
- Check your state. Some states have their own flat rate for bonuses, and nine states have no tax on wages at all.
Quick answers
Is a bonus taxed at 40%? No federal tax rate is 40%. People see numbers near 40% when the 22% federal, 7.65% for Social Security and Medicare, and a state rate of 5% to 10% are added together.
Is a gift card from my employer a bonus? Yes. Cash and gift cards are taxable wages, whatever the amount.
Does the bonus change my tax bracket? Only the part of your income that falls into a higher bracket is taxed at that bracket's rate. The rest of your salary is not taxed more.
More guides
- How Overtime Pay Works in the U.S.
- How to Read Your Pay Stub
- How to Calculate Hours Worked for Payroll
- Hourly vs. Salary: How to Compare Job Offers
This guide is general information about U.S. payroll rules, not tax or legal advice. Rules change and your situation may differ; check with your employer, your state labor department or a tax professional.