Every bonus story starts the same way: a number that looks generous on paper, then a deposit that looks like a typo. It is not a typo. Employers are required to treat a bonus as supplemental wages, a category the IRS created for pay that is not regular salary — bonuses, commissions, severance, overtime premiums, back pay. Supplemental wages get a different withholding method, and they still carry the same payroll taxes as everything else. Two systems take their cut at once, and neither one pauses to explain itself.
The good news: the rules are simple enough to run on a napkin, and the single most misunderstood part — the 22% — is not actually a tax at all. It is a deposit.
The 22% rule: withholding, not tax
For supplemental wages up to $1 million a year from one employer, the employer is allowed to withhold federal income tax at a flat 22% instead of estimating your bracket from your W-4. (Above $1 million, the rate jumps to 37% on the excess.) This flat-rate choice is called the percentage method, and it is the reason a bonus check looks so heavily "taxed": the withholding is visible, while the real tax bill is invisible until April.
Your actual federal tax on the bonus is simply the bonus multiplied by your marginal rate — the rate on your next dollar of income. If you are in the 12% bracket, a $10,000 bonus truly owes $1,200 of federal tax, no matter what was withheld. If you are in the 32% bracket, it truly owes $3,200. The 22% withholding is a prepayment against that number. Overpaid? You get it back at filing. Underpaid? You owe the difference.
Step-by-step: the bonus math
A bonus check loses money in five slices. Work them in this order:
1. Federal withholding: 22%. Multiply the bonus by 0.22. Remember: prepayment, not the bill.
2. Social Security: 6.2%, up to the wage base. The bonus counts toward Social Security like regular pay — but only up to $184,500 of total wages for 2026. If your salary already passed that line, the bonus pays zero Social Security tax. If it has not, the bonus pays 6.2% on whatever part of it fits under the cap.
3. Medicare: 1.45% of every dollar. No cap, no exceptions — and an extra 0.9% applies to total wages above $200,000 single or $250,000 joint.
4. State tax. Most states tax bonuses like regular wages, at your normal state rate. Some apply a special supplemental rate, so a flat estimate is the honest shortcut.
5. Pre-tax 401(k). If your employer's plan lets you contribute from a bonus, those dollars skip federal and state withholding — but not Social Security and Medicare. The FICA taxes are calculated on the full bonus regardless.
Worked example: a $10,000 bonus
$10,000 gross bonus, single, nothing earned yet this year, no state tax, no 401(k):
1. Federal withholding: $10,000 × 22% = $2,200.
2. Social Security: $10,000 × 6.2% = $620.
3. Medicare: $10,000 × 1.45% = $145.
4. Net: $10,000 − $2,200 − $620 − $145 = $7,035. About 70.3% of the headline survives — and if your marginal rate is 12%, $1,000 of that withholding comes back at filing.
The separate-check vs. same-check surprise
Some people get a $5,000 bonus and lose $1,500; others lose $2,200 on the same $5,000. The difference is how the bonus was paid. A bonus on its own check gets the flat 22%. A bonus lumped into a regular paycheck gets run through the aggregate method: the employer annualizes the swollen paycheck and withholds as if you earned that much every period — often withholding far more than 22%.
Either way, the final bill is identical. Only the timing changes: the aggregate method is an involuntary loan to the government until your refund. If your employer lets you choose, a separate check is gentler on your month.
Three ways to keep more of it
Route it to your 401(k). The biggest legal lever on a bonus. Bonus dollars sent pre-tax skip federal and state withholding on the spot, and they grow tax-deferred. Confirm your plan allows bonus contributions — not every employer's plan document does.
Time it after the wage base. If you are paid a salary near the top of the Social Security wage base, a bonus late in the year can skip the 6.2% entirely. You cannot usually pick the date, but you can at least know why December bonuses deposit so much more cleanly than January ones.
Stop confusing withholding with tax. A $10,000 bonus in the 12% bracket is not "taxed at 22%" — it is over-withheld, and the money returns at filing. Budget the refund, not the pain.
Frequently asked questions
Is a sign-on bonus taxed the same as a regular bonus?
Yes. The IRS treats sign-on bonuses, annual bonuses, referral bonuses, and severance the same way: supplemental wages, same 22% flat withholding, same payroll taxes, all reported on your W-2. One warning: if you leave early and the bonus has a clawback clause, you may owe back the gross amount and recover the withheld taxes only when you file.
Will my bonus be taxed again at filing?
No — it is taxed once, at your marginal rate. What you are really doing at filing is reconciling: compare the 22% that was withheld against the marginal rate you actually owe. The gap comes back to you or is owed by you. Think of withholding as a deposit, not a bill.
Do bonuses count toward my 401(k) contribution?
It depends on your employer's plan document. Some plans define compensation to include bonuses, so your normal contribution percentage pulls from the bonus automatically; others define it as salary only. Ask your plan administrator — and if bonuses are excluded, you may still be able to make a one-time election.
Why do bonuses feel taxed more than overtime or raises?
Because the 22% flat withholding is usually higher than the actual rate a middle earner pays. Regular paycheck withholding is tuned to your W-4, so it feels "right." A bonus bypasses that tuning. Add payroll taxes on top and the visible bite is genuinely larger — even though the true marginal tax on a $1,000 raise and a $1,000 bonus is the same.
Can I avoid the 22% withholding?
Mostly no — it is your employer's choice of withholding method, not yours. You can adjust your W-4 to reduce regular-paycheck withholding to offset it, but that risks under-withholding penalties if you overshoot. The simpler play: accept the prepayment, and let the refund settle it.
Run your own numbers: the free bonus tax calculator does this whole method live — the animated bar shows where each dollar goes, and the comparison tells you whether the 22% withholding is too much or too little for your bracket.
Related reading: the how to calculate take-home pay guide applies the same bracket logic to your whole salary, and the real hourly rate guide shows how to price a bonus inside an offer.