How bonus taxes work in 2026
When your employer pays a bonus, commission, severance, or any other one-time payment, the IRS classifies it as a supplemental wage. Supplemental wages follow different withholding rules than your regular paycheck — and understanding those rules can help you plan ahead and avoid surprise tax bills when you file. For regular paycheck withholding, use our payroll tax calculator.
Why the flat 22% rate exists
Under IRS Publication 15 (Circular E), employers may withhold federal income tax on supplemental wages at a flat 22% rate for combined supplemental wages up to $1,000,000 per calendar year. For the portion of a bonus that exceeds $1 million, the rate jumps to 37%. The flat method is simple — it requires no knowledge of the employee's W-4 filing status or annualized income. Critically, the 22% is a withholding rate, not your final tax liability. If your marginal income tax bracket is lower than 22% — for example, if you're in the 12% bracket — you will likely receive a refund on that difference when you file. If you are in the 32% or 35% bracket, you may owe additional tax at filing since withholding underpays your actual obligation.
The aggregate method: more precise, more complex
Some employers use the aggregate method, which treats the bonus as if it were part of regular wages for the pay period. To calculate, your employer annualizes your regular gross pay (gross per period × pay periods per year), adds the bonus to that figure, applies the 2026 federal income tax brackets to the combined amount, then subtracts the estimated annual tax on just the regular wages. The remainder is withheld from the bonus. The aggregate method tends to produce a withholding rate that closely matches your actual marginal bracket — making it preferable for employees whose income level is far above or below the 22% bracket. For a full gross-to-net paycheck breakdown with 401(k) and health insurance deductions, see the full paycheck calculator.
FICA taxes always apply to bonuses
Regardless of which federal income tax withholding method your employer uses, Social Security (6.2%) and Medicare (1.45%) taxes are always withheld from bonus pay. Social Security only applies up to the 2026 wage base of $176,100 — if your year-to-date W-2 wages have already surpassed that limit, no Social Security tax will be withheld from your bonus. State income taxes also apply based on your state's supplemental wage rate, which ranges from 0% in the nine no-income-tax states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming) to over 10% in California and New Jersey.
How to reduce bonus tax withholding
If your employer allows bonus-to-retirement contributions, directing your bonus into a traditional 401(k) or 403(b) reduces both federal and state income tax withholding — though FICA taxes still apply. The 2026 401(k) elective deferral limit is $23,500 ($31,000 for those age 50 and older with catch-up contributions). You can also update your W-4 to request additional withholding on regular paychecks throughout the year, smoothing out the gap between what is withheld from your bonus and your actual tax liability. If you receive bonus-type payments as a 1099 contractor, self-employment tax (15.3%) applies in addition to income tax — use the 1099 vs W-2 calculator to see the full comparison.