How Is a Bonus Taxed? The Real Bonus Tax Rate

You got a $5,000 bonus, but only about $3,000 landed in your account — so bonuses are taxed at 40%, right? Not exactly. The high deduction you saw is withholding, not your final tax bill. Understanding the difference can save you from a nasty surprise (in either direction) at tax time.

How bonuses are withheld

The IRS treats bonuses as “supplemental wages,” and employers usually withhold them using the flat-rate method:

• 22% federal withholding on the bonus (flat rate up to $1 million).
• 37% on any portion of bonuses above $1 million in a year.
• Plus FICA (7.65%) and any state tax — just like normal pay.

Add 22% + 7.65% + state, and a bonus can easily lose 30–40% up front. That’s why it looks so heavily taxed.

The aggregate method

Some employers instead lump the bonus into a regular paycheck and withhold as if you earn that much every period — which can withhold even more temporarily. Again, it all evens out when you file; only the timing differs.

How to think about it

The real question isn’t “what’s the bonus tax rate” — it’s “what’s my marginal tax rate.” That’s the rate your bonus is genuinely taxed at once everything settles. A $5,000 bonus for someone in the 22% bracket really costs about 22% federal + FICA + state — not the 40% the paystub implied.

Reduce the hit

Directing a bonus into a traditional 401(k) can defer the income tax entirely (FICA still applies) — see how 401(k) contributions work. To see your true marginal rate, run your salary through the calculator and check the marginal rate badge.