Question 1

What is the tax rate on bonuses in 2025?

Accepted Answer

Bonuses are taxed as ordinary income at your marginal federal tax rate, which ranges from 10% to 37% depending on your total annual income and filing status. Employers typically withhold at the IRS supplemental wage rate of 22% for bonuses under $1 million, or 37% for amounts above $1 million. The withholding rate is not your final tax rate — you settle up when you file your return.

Question 2

Why does my bonus seem taxed at a higher rate?

Accepted Answer

Your bonus may appear heavily taxed for two reasons. First, if your employer uses the aggregate method, it calculates withholding as if your bonus is added to your annual salary, which can push the estimate into a higher bracket temporarily. Second, FICA taxes (Social Security and Medicare) are also withheld, adding to the deductions. Your final tax on the bonus is determined when you file your return — any over-withholding comes back as a refund.

Question 3

Can I reduce taxes on my bonus?

Accepted Answer

Yes. The most effective strategies include contributing the bonus to a pre-tax 401(k), increasing your 401(k) deferral rate before the bonus is paid so it is automatically contributed, or timing a deductible expense in the same year. If the bonus pushes you into a higher bracket, a larger 401(k) or HSA contribution in the same year can offset the impact.

Bonus Tax Rate 2025: How Bonuses Are Taxed and What to Expect