US Bonus Tax Calculator

How Bonuses Are Taxed: Flat Rate vs. Aggregate Method

Receiving a bonus is exciting, but many employees are caught off guard by how much of it disappears to taxes. Bonuses are classified as supplemental wages by the IRS, and they can be taxed differently from your regular paycheck. Understanding the two primary methods employers use to withhold federal income tax on bonuses — the flat percentage method and the aggregate method — can help you plan ahead and avoid surprises.

The Flat Percentage Method (22%)

The simplest and most common approach is the flat supplemental rate. For bonuses under $1 million, the IRS allows employers to withhold federal income tax at a flat 22% regardless of the employee's regular income or tax bracket. For bonuses exceeding $1 million, the portion above $1 million is withheld at 37% (the top marginal rate). This method is straightforward and does not require the employer to look up the employee's year-to-date earnings or W-4 information.

The Aggregate Method

Under the aggregate method, the employer combines the bonus with the employee's most recent regular paycheck and calculates federal income tax on the total as if it were a single regular payment. The withholding on the regular pay alone is then subtracted, and the difference is the amount withheld from the bonus. This method often results in higher withholding for employees in higher tax brackets because the combined amount may push income into a higher marginal bracket. However, it can result in lower withholding for employees in lower brackets whose bonus does not push them into a significantly higher bracket.

FICA Taxes on Bonuses

Regardless of which federal income tax method your employer uses, bonuses are always subject to FICA taxes. Social Security tax at 6.2% applies until your cumulative annual earnings reach the wage base ($184,500 for 2026). If your regular salary has already exceeded this cap, your bonus will not owe additional Social Security tax. Medicare tax at 1.45% applies to all bonus income with no cap, and the additional 0.9% Medicare surtax applies if your combined salary and bonus exceed $200,000 for the year.

State Tax on Bonuses

State tax treatment of bonuses varies. Some states use a flat supplemental rate similar to the federal approach, while others require aggregation with regular pay. States with no income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming) do not tax your bonus at all. This calculator applies a simplified effective state rate, but your actual state withholding may differ.

Withholding vs. Actual Tax Owed

An important distinction: the amount withheld from your bonus is not necessarily the amount of tax you actually owe. Withholding is an estimate. When you file your annual tax return, your bonus is included in your total income and taxed at your actual marginal rate. If too much was withheld, you receive a refund; if too little was withheld, you owe the difference. The flat 22% method, in particular, may over-withhold for employees in the 10% or 12% bracket and under-withhold for those in the 32% bracket and above.

Strategies to Manage Bonus Taxes

If you expect a large bonus and want to reduce the tax impact, consider increasing your 401(k) contributions for the pay period that includes the bonus. Traditional 401(k) contributions reduce taxable income, potentially lowering the federal and state income tax withheld. You can also adjust your W-4 withholding for the rest of the year if you anticipate being over-withheld. Consulting with a tax professional before bonus season can help you optimize your withholding strategy and avoid an unexpected tax bill or an excessively large refund.