How Much Should You Withhold From a Year-End Bonus? (w/Examples) + FAQs

Currency note: This article reflects federal rules and selected state rules as of June 2026 and covers tax year 2025 (filed in 2026) and tax year 2026. Tax law changes — confirm current figures with the IRS and your state Department of Revenue before you file. This guide is educational and is not a substitute for advice from a licensed tax professional for your specific situation.

Quick Answer

Withhold a flat 22% of a year-end bonus for federal income tax in 2025 and 2026 (the IRS supplemental rate), rising to 37% on any amount above $1 million per employer. Add Social Security, Medicare, and state tax on top. This is withholding, not your final tax.

Why Your Bonus Check Shrinks So Much

When a $10,000 bonus lands as a $6,000 deposit, most people assume the bonus was “taxed at 40%.” It was not. The IRS sets a flat 22% federal withholding rate on supplemental wages such as bonuses for both 2025 and 2026, a rate the One Big Beautiful Bill Act made permanent by extending the Tax Cuts and Jobs Act brackets. On top of that flat rate sit Social Security, Medicare, and (in most states) a state withholding cut.

The stakes are real because withholding is only a prepayment. About 80% of filers receive a refund each year, per IRS filing-season data, which means the typical worker over-withholds and waits months to get their own money back. A bonus can flip that: if your marginal bracket is above 22%, the flat rate under-withholds and you owe at filing. Knowing which side you fall on lets you fix it before the April deadline.

💵 The exact federal, Social Security, and Medicare rates that hit your bonus in 2025 and 2026.
🧮 Step-by-step worked math for a $5,000, a $40,000, and a $1.3 million bonus.
⚖️ The flat method vs. the aggregate method — and which one leaves more in your pocket.
🗺️ How states like California, New York, and Texas treat bonus withholding.
🛟 Legal moves (401(k), HSA, W-4, estimated payments) to keep more of your bonus.

What Counts as a “Bonus” for Withholding

The IRS does not use the word “bonus” as its legal category. It uses supplemental wages, defined in Publication 15, section 7 as pay that is not your regular periodic wage. A year-end bonus is the headline example, but the rule sweeps in far more.

Supplemental wages include year-end, performance, retention, signing, spot, and referral bonuses. They also include commissions, the “half” portion of overtime premium pay, severance, accumulated sick or vacation pay at termination, back pay, prizes and awards, reported tips, and certain taxable fringe benefits. Every one of these is withheld under the same supplemental-wage rules, so the math below applies whether you got a holiday bonus or a sales commission.

The reason this matters is the consequence: because all supplemental wages share one rule set, stacking several of them in one year (a bonus plus a commission plus severance) can push your total withholding far from your true tax — and the gap only surfaces at filing. The fix is to total your expected supplemental pay for the year, not look at each check alone.

The Two Legal Methods Employers Use

Your employer — not you — picks how to withhold. Publication 15, section 7 allows exactly two methods, and the choice can swing your take-home by hundreds of dollars on the same bonus.

Method 1: The Flat Rate (22%)

The flat method is the default when the bonus is paid on a separate check or listed as a separate line on your pay stub. The employer multiplies the bonus by 22% and withholds that for federal income tax. Nothing on your Form W-4 changes this number.

For a $15,000 bonus, federal withholding is simply $15,000 × 22% = $3,300. The simplicity is why most payroll departments default to it. The consequence is that the flat rate ignores your real bracket entirely — great if you are a high earner whose marginal rate is 32%, painful if you are in the 12% bracket and would rather not lend the IRS extra money interest-free until your refund. The fix for low-bracket workers is to claim the over-withholding back at filing.

Method 2: The Aggregate Method

Under the aggregate method, the employer lumps the bonus into your most recent regular paycheck, figures withholding on the combined total using your W-4 and the Publication 15-T tables, subtracts what the regular pay alone would have withheld, and withholds the difference from the bonus. It is required when the bonus is not separated from regular wages.

Say you earn $3,000 biweekly and get a $5,000 bonus in the same check. Withholding on the combined $8,000 might be about $1,200; withholding on $3,000 alone might be about $300; so the bonus carries about $900, or roughly 18%. For a modest earner, the aggregate method often withholds less than 22%. For a high earner, it withholds more, because the combined amount climbs into higher bracket rows. The consequence is real dollars, but you cannot pick the method — so the move is to know which your employer uses and plan around it.

Social Security and Medicare: The Part You Never Get Back

Federal income tax withholding is a prepayment you can recover. FICA is not. Three separate FICA pieces apply to your bonus on top of the 22%, and they are final taxes regardless of your refund.

Social Security: 6.2% on wages up to the 2026 wage base of $184,500 (it was $176,100 for 2025), per the Social Security Administration. Once your year-to-date wages cross the base, no more Social Security tax comes out.
Medicare: 1.45% on the entire bonus, with no cap, per Publication 15.
Additional Medicare: 0.9% on wages above $200,000 (single/HoH), $250,000 (married filing jointly), or $125,000 (married filing separately), under the Additional Medicare Tax rules. Employers start withholding it once your wages from that employer top $200,000, no matter your filing status.

The consequence to remember: the 7.65% base FICA layer on your bonus never comes back at filing, unlike income tax withholding. A common misconception is that “all those taxes” return in your refund — they do not. If too much Additional Medicare is withheld (for example, a married couple under the $250,000 joint threshold), you reconcile and recover it on Form 8959 with your return.

Which Situation Applies to You?

The right answer depends on your bracket, your state, and your bonus size. Find your case below, then read the matching worked example.

You earn under ~$100k and are in the 12% or 22% bracket: The flat 22% likely over-withholds. Expect part of it back at filing; no action usually needed.
You earn $200k+ and are in the 32% or 35% bracket: The flat 22% under-withholds. Plan a Q4 estimated payment or extra W-4 withholding.
Your bonus tops $1 million from one employer: The excess is withheld at 37% by law — see the executive example.
You got large bonuses from two or more employers: Neither may hit the 37% rule, so you are likely under-withheld across the board.
You live in a no-income-tax state (TX, FL, etc.): No state withholding applies — only federal and FICA.

Worked Example 1: A $5,000 Bonus (Flat Method)

Maria, a single graphic designer in Texas, earns $62,000 a year and gets a $5,000 holiday bonus in December 2026 on a separate check. Her employer uses the flat method.

Federal income tax: $5,000 × 22% = $1,100
Social Security: $5,000 × 6.2% = $310
Medicare: $5,000 × 1.45% = $72.50
State tax: Texas has no income tax, so $0
Total withheld: $1,482.50; net deposit ≈ $3,517.50

Maria’s actual federal marginal bracket is 22% for 2026, so her income-tax withholding closely matches her real tax — she will neither owe much nor get a big refund on the bonus. The lesson: at a 22% bracket, the flat rate is nearly perfect, and her only permanent cost is the $382.50 of FICA.

Worked Example 2: A $40,000 Bonus for a High Earner

David, a single product manager in California, has already earned $175,000 in 2026 wages when he receives a $40,000 year-end bonus (flat method).

Withholding Item	Amount on the Bonus
Federal income tax (22% × $40,000)	$8,800
Social Security (only $9,500 left under the $184,500 base × 6.2%)	$589
Medicare (1.45% × $40,000)	$580
Additional Medicare (0.9% × $15,000 above $200k)	$135
California supplemental (10.23% × $40,000), per EDD DE 44	$4,092
Total withheld	$14,196
Net deposit	≈ $25,804

David sees about 64% land in his account and assumes a 36% tax hit. But his federal marginal bracket is 32%, so his actual federal tax on the bonus is about $12,800 — roughly $4,000 more than the $8,800 withheld. The consequence: he is under-withheld and will owe about $4,000 at filing. His fix is a fourth-quarter estimated payment before January 15 to dodge an underpayment penalty.

Worked Example 3: A $1.3 Million Executive Bonus

Priya, a single executive, receives a $1.3 million bonus from one employer in 2026.

First $1,000,000: withheld at 22% = $220,000
Remaining $300,000: withheld at the mandatory 37% = $111,000
Total federal income tax withheld: $331,000, plus full Medicare and Additional Medicare, plus state tax

The 37% rate on the excess is not optional — Publication 15 requires it once supplemental wages from one employer top $1 million in a calendar year. The trap appears when the $1 million is split across employers: if Priya got $700,000 from one and $600,000 from another, neither hits the 37% rule, both withhold 22%, and she is badly under-withheld on $1.3 million. The fix for multi-employer executives is a large Q4 estimated payment sized to the gap.

Three Common Bonus Scenarios

Scenario A — separate bonus check, modest earner

Your Situation	What Happens to Withholding
$4,000 bonus, 12% bracket, separate check	Flat 22% withholds $880; your real tax is closer to $480, so you recover the difference at filing

Scenario B — bonus folded into a regular paycheck

Your Situation	What Happens to Withholding
$8,000 bonus added to a $3,000 paycheck	Employer must use the aggregate method; withholding follows your W-4 and bracket rows, often near or above 22%

Scenario C — high earner past the Social Security cap

Your Situation	What Happens to Withholding
$30,000 bonus after $190,000 YTD wages	No Social Security comes out (cap already met), but 22% federal, 1.45% Medicare, and 0.9% Additional Medicare still apply

How to Keep More of Your Bonus (Legally)

You cannot lower the 22% statutory rate itself, but you can shrink the taxable amount or fix the timing. Each move below has a deadline, so act before the bonus is cut.

Defer Part of It Into Your 401(k)

If your plan allows bonus deferrals, a pre-tax 401(k) contribution from the bonus reduces federal and usually state income tax withholding on the deferred amount. FICA still applies. The 2026 elective deferral limit is $23,500 (plus catch-up for age 50+), per the IRS retirement limits. The catch: most plans require the deferral election before the bonus is paid, so set it up in November.

Route It Through an HSA

If you have a qualifying high-deductible health plan and payroll allows it, an HSA contribution from a bonus is unique because it escapes both income tax and FICA. The 2026 HSA limits are $4,400 self-only and $8,750 family (plus $1,000 catch-up at 55+). The ceiling is small, but it is the only deferral that removes the otherwise-permanent 7.65% FICA on that slice.

Make a Q4 Estimated Payment

If your bracket is above 22%, the flat rate under-withholds and you will owe. Send a fourth-quarter estimated payment through IRS Direct Pay by January 15 of the next year. Missing it can trigger an underpayment penalty even if you pay in full by April.

Adjust Your Form W-4

If you under-withhold every year, ask for extra withholding on regular paychecks using Step 4(c) of Form W-4. Our How to Fill Out a W-4 guide walks through each line. This spreads the catch-up over many checks instead of one painful lump.

A Note on the New 2025 Tips and Overtime Deductions

The 2025 One Big Beautiful Bill Act created temporary deductions for qualified tips (up to $25,000) and qualified overtime (up to $12,500 single / $25,000 joint) for tax years 2025 through 2028. These can lower your final tax if part of your supplemental pay is tips or overtime. Importantly, they do not change your employer’s bonus withholding — a year-end bonus is neither a tip nor overtime, so the 22% supplemental rule still governs the check. Confirm the income phase-outs and your eligibility before counting on them, since these provisions sunset after 2028.

Federal vs. State: How Your State Treats a Bonus

The federal 22% is national, but state withholding varies sharply. Always verify the current rate with your state Department of Revenue, because legislatures change them.

State Treatment	How the Bonus Is Withheld
No income tax (AK, FL, NV, SD, TX, WA, WY, plus NH/TN on wages)	$0 state withholding; only federal and FICA apply
Flat-rate states (e.g., IL 4.95%, PA 3.07%, CO 4.4%)	The flat state rate generally applies to the bonus
California, per EDD DE 44	A bonus-specific 10.23% supplemental rate (6.6% for stock options)
New York, per NYS-50-T	Bracket-based; a top supplemental rate near 11.7% for high earners
Bracket-method states (e.g., VA, OR, MN)	Aggregate the bonus with regular pay and use state tables

Mistakes to Avoid

Treating 22% as a tax rate. It is a withholding rate; your real tax can be higher or lower, and the gap hits your return.
Forgetting the multi-employer trap. Two big bonuses from two employers can both withhold at 22%, leaving you owing on amounts that should have hit 37%.
Assuming FICA comes back. The 7.65% base FICA is a final tax — it never returns in a refund.
Missing the 401(k) deferral window. Elect before the bonus is paid, or you lose the chance for that bonus.
Ignoring Additional Medicare near $200k. High earners get a surprise 0.9% and a Form 8959 line they did not expect.
Expecting your state to copy the feds. California’s 10.23% bonus rate dwarfs a no-tax state’s $0.
Skipping the Q4 estimated payment. Under-withholders who wait until April can owe an underpayment penalty on top of the tax.

Do’s and Don’ts

Do confirm whether your employer uses the flat or aggregate method, because it changes your check.
Do total all supplemental pay for the year, since stacking bonuses and commissions distorts withholding.
Do elect 401(k) or HSA deferrals early, as the deadline is before the bonus is cut.
Do make a Q4 estimated payment if your bracket tops 22%, to avoid penalties.
Do check your state’s current supplemental rate, because it is set independently of the IRS.

Don’t

Don’t assume your bonus was “overtaxed,” since most of the hit is recoverable withholding.
Don’t count on FICA returning, because the base 7.65% is permanent.
Don’t ignore a clawback, as repaying a signing bonus has tricky tax recovery rules.
Don’t forget multi-state work, since a bonus can be sourced to where you worked.
Don’t rely on illustrative state rates without verifying, because they change mid-year.

Pros and Cons of the Flat 22% Method

Pros

Simple and predictable, so you can compute your withholding in seconds.
Matches reality for 22%-bracket earners, leaving little owed or refunded.
Keeps the bonus separate, which makes the math transparent on your stub.
Easy for payroll, reducing the chance of an employer error.
Avoids pushing your regular paycheck into higher bracket rows, unlike aggregation.

Cons

Over-withholds for low-bracket workers, costing you the use of your money until refund.
Under-withholds for high earners, setting up a balance due at filing.
Ignores your W-4, so personal credits and deductions are not reflected.
Can mask the multi-employer $1 million trap, leading to large shortfalls.
Says nothing about state tax, which you must plan for separately.

What to Do Next

Find your federal marginal bracket for the year, then compare it to 22% to see if you will owe or get money back.
Ask payroll whether your bonus uses the flat or aggregate method and whether it is a separate check.
If your bracket tops 22%, size the shortfall and schedule a Q4 estimated payment by January 15.
If your plan allows it, elect a pre-tax 401(k) or HSA deferral before the bonus is paid.
Check your state’s current supplemental rate on your Department of Revenue site.
If your bonus is in the hundreds of thousands, involves multiple employers, equity, or a clawback, call a CPA or tax attorney — these cases create real liability gaps that DIY math misses.

Frequently Asked Questions

Is a bonus taxed at a higher rate than regular pay?

No. A bonus is withheld at a flat 22% (for 2025 and 2026), but it is taxed at your normal marginal rate when you file. If your bracket is below 22%, you recover the excess; if above, you may owe more.

What is the supplemental withholding rate for 2026?

22% on the first $1 million of supplemental wages per employer, and 37% on any amount above $1 million. The One Big Beautiful Bill Act made these rates permanent for 2026.

How much should an employer withhold from a year-end bonus?

22% federal, plus 6.2% Social Security (up to $184,500 of 2026 wages), 1.45% Medicare, and any state supplemental rate. Above $1 million per employer, federal jumps to 37% on the excess.

Do Social Security and Medicare apply to bonuses?

Yes. Social Security (6.2%) applies up to the 2026 wage base of $184,500, Medicare (1.45%) applies with no cap, and an extra 0.9% Medicare applies to wages above $200k single or $250k married filing jointly.

Can I avoid the 22% withholding on my bonus?

No, not the rate itself. But you can reduce the taxable amount by deferring into a 401(k) or HSA before the bonus is paid, which lowers income-tax withholding (HSA also lowers FICA).

My bonus was taxed about 40% — do I get it back?

Partially, often yes. The roughly 40% is 22% federal withholding plus 7.65% FICA plus state tax. Only the FICA piece is permanent; the federal and state withholding settle up on your return.

Is the $1 million 37% rate cumulative across employers?

No. The $1 million threshold is per employer per calendar year. Two employers paying $600k each both withhold at 22%, which usually leaves you under-withheld and owing at filing.

Which method leaves me with more money — flat or aggregate?

It depends on your bracket. Low earners usually keep more under the aggregate method; high earners usually keep more under the flat 22% method. Your employer chooses, not you.

Does my state withhold extra on a bonus?

Most do, but it varies. No-income-tax states like Texas and Florida withhold $0; California uses 10.23%; flat-tax states apply their flat rate. Verify the current figure with your state Department of Revenue.

When is the deadline to fix bonus under-withholding?

January 15 of the following year for a Q4 estimated payment through IRS Direct Pay. Missing it can trigger an underpayment penalty even if you pay the full balance by the April filing deadline.

Does the new “no tax on tips/overtime” law change bonus withholding?

No. A bonus is neither a tip nor overtime, so the 22% supplemental rule still applies. The 2025-law deductions may lower your final tax on qualified tips or overtime, but not on a bonus.

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