How Bonuses Are Taxed
Your $5,000 bonus arrived as $3,300 and the internet told you "bonuses are taxed at 40%." Almost everything in that sentence is wrong. Here is how bonus taxation actually works — the 22% rule, the aggregate method, and what you legally get back.
The 22% Flat Rule (Percentage Method)
The IRS classifies bonuses as supplemental wages. Paid as a separate check, federal income tax withholds at a flat 22% (mandatory 37% on amounts above $1 million). On top: 7.65% FICA (Social Security up to the wage base + Medicare) and state income tax. Total bite: usually 30–35%. Run your exact numbers in the bonus tax calculator.
Withholding Is Not Tax — The Part Everyone Misses
At filing time, your bonus is ordinary income taxed at your normal bracket. The 22% was only a withholding estimate: if your marginal rate is 12–22%, the excess comes back as a refund; if you're in the 32%+ brackets, you may owe a little more. "Bonuses are taxed higher" is a myth created by comparing withholding to withholding — a year later, a bonus dollar and a salary dollar have paid exactly the same tax.
The Aggregate Method (Why Some Bonus Checks Look Worse)
When a bonus is added to a regular paycheck instead of paid separately, payroll applies your W-4 tables to the combined amount — which treats the big check as your new normal salary and often withholds MORE than 22%. Same reconciliation at filing; just uglier in the moment. If your employer offers a choice, the separate-check percentage method gives a more predictable net.
Worked Example
$5,000 bonus, 5% state tax, under the Social Security wage base:
- Federal 22%: −$1,100
- Social Security 6.2%: −$310 • Medicare 1.45%: −$72.50
- State 5%: −$250
- Take-home: $3,267.50 (65.4%) — with any over-withholding returning at filing
Keeping More of Your Bonus (Legally)
- 401(k) bonus deferral: many plans allow a separate deferral election on bonuses — deferred amounts skip income-tax withholding now (FICA still applies).
- Payroll HSA top-up: the only mainstream FICA escape — contributions via payroll skip income tax AND the 7.65%.
- Timing: a December vs January bonus lands in different tax years — valuable when next year's income will be lower.
- Cross-check Social Security: if you've passed the wage base, the 6.2% shouldn't be withheld on the bonus — verify with the Social Security tax calculator.
The Same Rules Hit Other Lump Sums
Severance, PTO payouts, commissions, and RSU vests all use supplemental-wage withholding — the math and myths transfer directly. Severance has extra planning angles (installments, unemployment interaction) covered in the severance tax calculator; PTO payouts in the PTO payout calculator. And a raise beats a bonus of equal size every time — it repeats and compounds; see the comparison in the pay raise calculator.
Frequently Asked Questions
What percentage are bonuses taxed at?
Withheld at 22% federal flat (37% above $1M) plus 7.65% FICA plus state tax — about 30-35% total. Actual tax is your ordinary bracket, settled at filing.
Are bonuses taxed higher than salary?
No — identical tax at filing. They are often WITHHELD more heavily, and the difference returns as a refund.
How much is a $10,000 bonus after taxes?
Typically $6,500-7,000 in hand: $2,200 federal withholding, $765 FICA, plus state tax depending on where you live.
Can I avoid tax on my bonus by putting it in my 401(k)?
You can defer the income tax (not FICA) if your plan allows bonus deferral elections — set it before the bonus pays out.
Why did my bonus check withhold 40%?
Probably the aggregate method: bonus added to a regular paycheck and W-4 tables applied to the total. It reconciles at filing — you have not permanently lost the difference.
Last updated: August 20, 2026