How Are Bonuses Taxed? Withholding vs Tax (2025)

A bonus is taxed as ordinary income at your marginal rate, exactly like your salary. There is no special "bonus tax." What makes a bonus feel overtaxed is withholding: employers usually take a flat 22% for federal income tax on a separate bonus, plus Social Security and Medicare, and for many workers 22% is more than their paycheck rate. If too much is withheld, the excess comes back as a bigger refund when you file. The number on your pay stub is a prepayment, not your final tax.

Why is my bonus taxed so high?

It usually is not taxed higher, it is withheld higher. The IRS treats a bonus as a "supplemental wage," a category that also covers commissions, overtime, severance, and payouts of unused vacation. Employers have two ways to withhold federal income tax on supplemental wages, and both can pull more than your regular paycheck.

The first is the percentage method: withhold a flat 22% on the bonus, separate from your normal wages. This is the one most people run into. If your salary is taxed at an effective rate of 12% or 15% across the year, a flat 22% on the bonus looks like a lot. For someone in a higher bracket, 22% can actually be too little. On supplemental wages above $1 million in a year, the amount over $1 million must be withheld at the top 37% rate.

The second is the aggregate method: the employer lumps the bonus in with a regular paycheck and withholds as if that combined amount were your normal pay for the period. Because a lump sum briefly makes one paycheck look huge, the withholding tables treat it as if you earned that much every period, which often over-withholds even more than the flat 22%.

How are bonuses actually taxed?

At your marginal rate. When you file, the bonus is added to the rest of your income and taxed under the same 2025 brackets as everything else: 10%, 12%, 22%, 24%, 32%, 35%, or 37%. The withholding from the bonus is credited against your total tax bill, just like the withholding from your paychecks. If the combined withholding was more than your actual tax, you get the difference back. If it was less, common for people in the 24% bracket and above who only had 22% withheld, you owe the shortfall.

Whether a bonus grows your refund or your balance due comes down to a simple comparison: the rate withheld versus your true marginal rate. Knowing your bracket first makes the result predictable. Our guide on what tax bracket you are in walks through the marginal system, and the tax refund calculator lets you add a bonus and see the effect on your refund.

Social Security and Medicare still apply

Income tax withholding is only part of what comes out. Because a bonus is wages, payroll taxes apply on top:

Once your year-to-date wages pass the $176,100 Social Security wage base, the 6.2% stops, so a late-year bonus can have less withheld than an early-year one. The 0.9% additional Medicare tax kicks in on wages above $200,000. None of this is a penalty on bonuses specifically; it is the same FICA that comes out of every paycheck.

How to lower the tax on a bonus

You cannot change that a bonus is ordinary income, but you can shrink the taxable amount by routing part of it into pre-tax accounts before it hits your paycheck.

• 401(k). Deferring bonus dollars into a traditional 401(k) lowers your taxable income for the year. The 2025 employee contribution limit is $23,500, with an extra $7,500 catch-up at age 50 or older. Many employers let you set a separate deferral percentage for bonuses.
• HSA. If you are on an HSA-eligible high-deductible health plan, contributions are pre-tax and reduce both income tax and, when made through payroll, FICA. The 2025 limits are $4,300 self-only and $8,550 family, plus $1,000 catch-up at 55 or older.
• Traditional IRA. A deductible IRA contribution can offset some of the income if you qualify based on income and workplace-plan coverage.

These moves cut income tax, not the Social Security and Medicare on the bonus. Still, deferring a chunk of a large bonus is one of the few ways to keep more of it and build savings at the same time.

Frequently asked questions

Are bonuses taxed at 40%?

No. The common flat federal withholding on a separate bonus is 22%, not 40%. When you add state withholding, Social Security, and Medicare, the total taken out can approach 30% or more, which is where the "40%" impression comes from. Your actual federal tax on the bonus is your ordinary marginal rate, reconciled when you file, and over-withholding comes back as a refund.

Is a bonus taxed higher than my salary?

No. A bonus is taxed at the same ordinary-income rates as your salary. Only the withholding mechanics differ: a separate bonus is often withheld at a flat 22%, while your salary is withheld using your Form W-4. The final tax is identical whether a dollar arrives as salary or as a bonus.

Can I get bonus tax back?

Yes, if more was withheld than you actually owe. Because the flat 22% often exceeds a middle-income worker's real rate, the excess is credited on your return and increases your refund. If you were under-withheld, which happens in higher brackets, you pay the difference instead.

Why did my aggregate-method bonus get taxed so much?

The aggregate method combines your bonus with a regular paycheck and withholds as if you earn that inflated amount every pay period, which pushes the calculation into a higher bracket temporarily. It often over-withholds more than the flat 22% method. The extra withholding is not lost; it is returned or credited when you file your annual return.

See your numbers with TaxFile

TaxFile reads your W-2, applies the correct 2025 brackets, and shows your real tax after a bonus so you know whether to expect a refund or a balance due before you file. To plan ahead, the take-home pay calculator shows what lands in your paycheck after tax, and online tax filing covers the full federal and state return. This article is general information, not tax advice; for complex situations, consult a CPA or tax professional.