Short answer: your employer withholds a flat 22% federal income tax from bonuses up to $1 million in a calendar year — 37% on any amount above $1 million. That withholding is separate from Social Security (6.2%), Medicare (1.45%), and any state tax, so a $5,000 bonus in Texas typically puts about $3,520 in your pocket. Below: why bonuses feel more heavily taxed than regular pay, what you actually owe at tax time, and how to keep more of it.
The IRS classifies bonuses, commissions, overtime pay, severance, and back pay as supplemental wages — pay that isn't your regular salary. Employers generally have two ways to withhold on supplemental wages, and the one almost everyone uses is the flat-rate method: withhold 22% for federal income tax, no questions asked, as long as your total supplemental wages for the year stay at or under $1 million.
Cross $1 million in supplemental wages in one calendar year and the rule changes: the portion above $1 million must be withheld at 37%, the top federal rate. That's mandatory, not optional — so on a $1.2 million bonus, the first $1 million is withheld at 22% and the remaining $200,000 at 37%.
Two things this 22% doesn't include. First, it covers federal income tax only. Social Security (6.2% up to the $184,500 2026 wage base), Medicare (1.45% on everything, plus 0.9% on wages over $200,000), and your state's income tax all come out on top. Second, state withholding on bonuses varies widely — California withholds a flat 10.23% on bonuses, New York uses its own supplemental rates, and Texas, Florida, and seven other states take nothing at all.
Here's what a $5,000 year-end bonus looks like for a single filer in Texas (no state income tax) who hasn't hit the Social Security wage base yet:
Federal withholding: $1,100 (22%). Straight math — 22% of $5,000.
Social Security: $310 (6.2%). Still under the $184,500 wage base, so the full bonus is subject to it.
Medicare: $72.50 (1.45%). No cap, applies to the whole bonus.
Total withheld: $1,482.50. You keep $3,517.50 — about 70% of the bonus.
Same $5,000 bonus in California adds the state's 10.23% supplemental withholding, another $511.50 off the top, leaving about $3,006. And if you've already earned past $184,500 that year, the Social Security line disappears entirely and you keep roughly $310 more.
The 37% rule only matters for a small slice of earners, but it's worth seeing the math, because it shows exactly how the two withholding rates stack. Say an executive gets a $1.2 million annual bonus and has already blown past the Social Security wage base on salary alone — so no 6.2% Social Security applies to this bonus.
The first $1 million is withheld at 22%: $220,000 in federal withholding. The remaining $200,000 is withheld at 37%: $74,000. Total federal withholding: $294,000, an effective withholding rate of 24.5% on the whole bonus.
Medicare still applies to the full $1.2 million: 1.45% on everything ($17,400) plus the 0.9% Additional Medicare Tax on everything over $200,000 — that's $9,000 on the remaining $1 million. FICA total: $26,400. Combined federal + FICA withholding: $320,400, leaving about $879,600 before any state tax.
Notice what didn't happen: the employer didn't get to choose. Once supplemental wages cross $1 million in the calendar year, the 37% rate on the excess is mandatory withholding, even if the employee's actual marginal rate is lower. The reconciliation happens on the tax return like everything else — but on numbers this large, the timing of the cash can matter, which is why executives negotiate bonus timing and deferral arrangements.
This is the part that trips people up. The 22% is just withholding — an estimate your employer sends to the IRS on your behalf. Your bonus is ultimately taxed like any other income: it stacks on top of your salary and gets taxed at your marginal rate when you file.
That means the flat 22% can be too much or too little. If your marginal federal rate is 12% — say you're a single filer earning $45,000 — withholding 22% from your bonus means you overpaid, and the difference comes back to you as a bigger tax refund in the spring. If you're a high earner in the 32% or 35% bracket, the 22% withholding falls short and you'll owe the rest when you file.
So is 22% a good deal? For most middle-income earners, it's roughly right or slightly high. For earners in the 10% or 12% brackets, it's high — you're effectively giving the IRS an interest-free loan until refund time. For top-bracket earners, it's low, and an underpayment penalty is possible if too little was withheld overall (though the penalty only kicks in if you owe more than $1,000 at filing and paid less than 90% of the current year's tax).
Two mechanics make bonuses sting. First, many employers don't use the flat 22% at all — they use the aggregate method, which lumps the bonus into your regular paycheck and withholds as if you earned that inflated amount every pay period. A $5,000 bonus added to a $3,000 biweekly check gets withheld as though you make $208,000 a year, pushing some of it into higher brackets for withholding purposes. It all evens out at tax time, but the paycheck feels brutal.
Second, there's no getting around FICA. Unlike some deductions you can time or structure, Social Security and Medicare apply to bonuses dollar for dollar. On a bonus early in the year, you're paying the full 7.65% on top of the 22%.
One more quirk worth knowing: bonuses are not eligible for the pre-tax treatment you'd get by routing them through a 401(k) — unless your plan allows bonus deferrals, which many don't. Ask your plan administrator before bonus season if you want to shelter part of it.
You can't change the withholding rate your employer uses — the flat 22% is their choice, and the 37% over $1 million is law. But you have a few legitimate levers:
Time the bonus. If you can choose the payout year, consider which year puts you in a lower bracket — deferring a bonus into a year you'll earn less can genuinely reduce the tax, not just the withholding.
Defer into retirement. If your 401(k) plan accepts bonus deferrals, each pre-tax dollar avoids federal income tax this year (though FICA still applies). At a 22% marginal rate, deferring $5,000 saves $1,100 in federal tax now.
Adjust your regular withholding. If 22% is over-withholding for you (common in the 10–12% brackets), you can reduce withholding on your regular paychecks via your W-4 so you get the money during the year instead of waiting for a refund. Just be careful not to under-withhold overall.
Whatever you do, don't confuse a big bonus check with a raise. A bonus is a one-time event taxed at your marginal rate; spending it like recurring income is how people end up owing in April.
Bonuses are withheld at a flat 22% for federal income tax (37% on amounts over $1 million per year). The "40%" figure people quote usually includes Social Security, Medicare, and state tax on top of the 22% — so the total withheld can approach 35–40%, but the federal income tax piece is 22%.
No — at tax time, a bonus is taxed at the same marginal rate as your salary. The 22% flat withholding only applies to the withholding your employer takes. If 22% is higher than your actual bracket, you get the difference back as a refund.
Yes. Bonuses are subject to the full 6.2% Social Security tax up to the $184,500 annual wage base, plus 1.45% Medicare on all of it (and 0.9% extra Medicare on wages over $200,000). There is no exemption for bonus income.
California withholds a flat 10.23% state tax on bonuses, on top of the federal 22% (plus FICA). So a California bonus loses roughly 32% to federal + state withholding before FICA.
You generally can't pick a lower flat rate — the employer chooses between the 22% flat method and the aggregate method. But you can adjust your regular paycheck withholding on your W-4 to compensate if bonuses consistently over-withhold for your bracket.
The portion of supplemental wages above $1 million in a calendar year must be withheld at 37% — it's mandatory. The first $1 million is still withheld at 22%. Your actual tax when you file is based on your marginal bracket either way.