How Bonuses Are Actually Taxed
Bonuses are not taxed at a special, higher rate. They are ordinary income, taxed at whatever marginal federal bracket your total income for the year lands in -- 10% to 37% depending on your income and filing status. What trips people up is withholding: the IRS lets employers use a flat "supplemental wage" rate to withhold tax from a bonus, separate from how they withhold on your regular paycheck.
| Bonus Amount (Combined for the Year) | IRS Flat Withholding Rate |
|---|---|
| Up to $1,000,000 | 22% |
| Amount above $1,000,000 | 37% |
FICA (7.65%) is withheld on top of income tax withholding, which is why a bonus can feel like it lost 30% or more before it ever hits your bank account.
Withholding is not your final tax rate. The 22% (or 37%) withheld is a down payment, not your actual liability. If your marginal bracket is lower than 22%, you get the difference back as part of your refund. If it is higher, you may owe more when you file.
Percentage Method vs. Aggregate Method
Employers choose one of two ways to withhold tax on a bonus, and which one they use changes how big your bonus check looks -- though not your final tax bill.
Percentage (Flat) Method
Aggregate Method
Neither method changes your actual tax liability for the year -- both are just different ways of estimating withholding upfront. Your real tax on the bonus is settled when you file your return.
What a $10,000 Bonus Actually Costs in Withholding
Single Filer, $75,000 Base Salary, $10,000 Bonus (Percentage Method)
That is $2,965 withheld, a 29.65% cut. But this taxpayer's actual marginal bracket at $85,000 total income is 22% federal -- meaning the 22% income tax withholding on the bonus was about right, and the FICA portion (7.65%) is simply a tax everyone owes regardless of bracket. At filing, this bonus should not create a surprise bill either way.
When the mismatch cuts the other way. If this same taxpayer's marginal bracket were only 12%, the 22% withholding would over-collect on the bonus, and the difference comes back as a larger refund. If their bracket were 32% or 35%, the flat 22% under-collects, and they may owe additional tax on the bonus amount when they file.
Can You Reduce Taxes on Your Bonus?
You cannot avoid tax on a bonus, but you can legally reduce how much of it is taxed at your top bracket:
Increase your 401(k) deferral before the bonus is paid. If your employer applies your standing 401(k) percentage to bonus checks, raising your deferral rate for that pay period routes more of the bonus into a pre-tax account instead of your paycheck. Contributing the maximum $23,500 (2025 limit) reduces taxable income directly.
Max out an HSA if you have an eligible HDHP. HSA contributions are pre-tax, grow tax-free, and can absorb some of the bonus income before it is taxed. See our 2025 HSA contribution limits for the current caps.
Time a deductible expense into the same year. If the bonus pushes you into a higher bracket for the year, a deductible business expense, charitable contribution, or additional retirement contribution in the same tax year can offset some of the impact.
Frequently Asked Questions
Figures on this page reflect confirmed 2025 IRS supplemental wage withholding rates. Estimates for educational purposes only -- not tax, legal, or financial advice. Consult a qualified tax professional for guidance specific to your situation.