Complete Guide: How Bonuses Are Taxed in the U.S. (2026)
What the IRS Defines as Supplemental Wages
Getting a bonus feels great — until you see the net amount on your pay stub. The reason nearly half can disappear is simple: the IRS classifies bonuses, commissions, overtime paid separately, severance, and retroactive pay increases as supplemental wages, which follow different withholding rules than your regular paycheck.
The key thing to understand is that bonuses are not taxed at a higher rate than ordinary income. The U.S. tax system is marginal — every dollar of income, including your bonus, is taxed at the bracket it falls in on your annual return. What is different is the withholding method your employer uses to estimate your federal income tax at the time the bonus is paid.
According to IRS Publication 15 (Circular E), supplemental wages include any compensation paid in addition to regular wages:
Percentage Method vs. Aggregate Method — Deep Dive
Employers must use one of two IRS-approved methods when calculating federal income tax withholding on supplemental wages. The method used depends on how your employer issues the bonus check.
When a bonus is issued as a separate check from regular wages, the employer withholds at a flat 22% for total supplemental wages up to $1 million. Amounts over $1 million in the same year face a mandatory 37% on the excess. Your W-4 filing status and bracket have no effect.
Who this favors: employees in the 24%+ bracket (under-withheld — will owe at filing). Over-withholds for 10%/12% bracket earners (refund at filing).
When the bonus is combined with regular wages in the same paycheck, the employer annualizes the combined figure and applies your W-4 bracket. More accurate in theory, but can result in higher withholding because annualizing pushes the combined amount into a higher bracket temporarily.
Example: $7,000/mo + $5,000 bonus = $12,000 combined month → annualizes to $144,000 → 24% bracket for that period.
Step-by-Step Bonus After-Tax Formula
The calculator above handles all the math instantly. But understanding the manual calculation helps you verify results and make smarter decisions about how to structure your compensation.
Net Bonus Formula (Percentage Method)
Net = Gross × (1 − Federal Rate − SS Rate − Medicare Rate − State Rate)
Example: $10,000 bonus, Texas resident, wages below SS wage base
Net = $10,000 × (1 − 0.22 − 0.062 − 0.0145 − 0.00)
Net = $10,000 × 0.7035 = $7,035.00
Same bonus, California resident (10.23% state rate)
Net = $10,000 × (1 − 0.22 − 0.062 − 0.0145 − 0.1023)
Net = $10,000 × 0.6012 = $6,012.00
Key State Bonus Tax Rates Explained
California applies the highest flat supplemental withholding rate in the nation. Combined with 22% federal, 7.65% FICA, and CA SDI (~1.1%), a California employee typically sees 40–42% withheld from a standard bonus. On a $10,000 bonus, roughly $4,000 is withheld. Select California in the calculator above for an exact estimate.
New York State withholds using graduated brackets with rates up to 10.9%. NYC residents face an additional 3.876% city income tax. Yonkers residents add 1.477%. Combined with federal and FICA, a NYC resident in the 32%+ federal bracket could see 44–45% withheld from a large bonus.
Texas imposes no state income tax — only federal (22%) and FICA (7.65%) apply. Combined withholding is roughly 29.65% — significantly less than high-tax states. A $25,000 bonus in Texas yields approximately $17,587.50 net.
Florida, like Texas, has no state income tax. A Florida resident receiving a $25,000 bonus takes home approximately $17,587.50 after federal (22%) and FICA (7.65%) — with no state deduction.
Illinois has a flat state income tax of 4.95% that applies uniformly to all wages, including bonuses. Combined with federal and FICA, total withholding in Illinois is approximately 34.6% for a standard bonus.
Strategies to Legally Reduce Bonus Tax
What Happens at Filing: Over-Withholding and Under-Withholding
Rather than treating your net bonus check as the final number, model the after-filing amount: take the gross bonus, apply your actual marginal tax rate (federal + state), subtract FICA, and compare to what was withheld. The difference is either a refund or an amount to set aside.
Bonus under/over-withholding check
Gap = (Actual Rate − 22%) × Gross Bonus
Example: 32% bracket, $20,000 bonus
Gap = (0.32 − 0.22) × $20,000 = $2,000 owed at filing
/Example: 12% bracket, $10,000 bonus
Gap = (0.12 − 0.22) × $10,000 = −$1,000 refund at filing
For high earners, setting the gap amount aside in a high-yield savings account from the day you receive the bonus ensures you're never caught short at tax time. Use our Federal Income Tax Estimator to model your full annual tax liability including bonus income.
About This Calculator & Methodology
USA Salary Tools calculates bonus withholding using IRS Publication 15 (Circular E) supplemental wage rules and 2026 federal and state withholding assumptions. The 2026 Social Security wage base is $184,500 per the Social Security Administration. FICA rates reflect current law. State supplemental withholding rates are sourced from respective state Departments of Revenue.
Results are payroll withholding estimates for financial planning purposes only. Actual tax liability is determined on your annual Form 1040 based on total income, deductions, and credits. This page does not constitute tax or financial advice. Consult a licensed CPA, enrolled agent, or tax attorney for personalized guidance. Last updated: April 2026.