Why Your Bonus Got Taxed at 22%
Bonuses are withheld at a flat 22% federally, not taxed at 22%. Here is the difference, the $1 million rule, and why most people get some of it back.
You got a $5,000 bonus and roughly $1,100 vanished before it reached you. Nothing went wrong — that is the supplemental wage rule working as designed.
Withholding is not the same as tax
This distinction is the whole article.
Withholding is an estimated prepayment your employer sends to the IRS on your behalf. Tax is what you actually owe, calculated on your total annual income when you file.
A bonus is not taxed at 22%. It is withheld at 22%. Your bonus is ordinary income and it is taxed at whatever your marginal rate turns out to be for the year.
If your marginal rate is 12%, too much was withheld and the excess comes back as part of your refund. If your marginal rate is 32%, not enough was withheld and you will owe the difference.
The two methods employers use
IRS Publication 15 gives employers a choice.
The percentage method. A flat 22% federal withholding on supplemental wages, provided your cumulative supplemental wages for the year are under $1 million. Simple, predictable, and what most employers use for a separately paid bonus.
The aggregate method. The bonus is combined with your regular wages for that pay period and withheld using your normal W-4 tables. Because payroll systems annualise the combined figure, a large bonus can make it look as though you suddenly earn far more than you do, and withholding on the whole payment jumps accordingly. This method often withholds more than 22%.
Which one applies usually depends on whether the bonus was paid as a separate cheque or bundled into a regular paycheck.
The $1 million rule
Once your cumulative supplemental wages for the calendar year pass $1 million, the portion above that threshold is withheld at 37% — the top marginal rate. This is mandatory; the employer has no discretion.
The 22% and 37% figures are unchanged for 2026.
What else comes out
The 22% is federal income tax withholding only. Your bonus is also subject to:
| Deduction | Rate |
|---|---|
| Social Security | 6.2% up to $184,500 of total wages |
| Medicare | 1.45%, plus 0.9% above $200,000 |
| State income tax | Varies — some states have their own supplemental rate |
| Local income tax | Where applicable |
Add those up and total withholding on a bonus commonly lands between 30% and 40%. On a $5,000 bonus in a state with a 5% income tax, expect roughly $1,600 withheld and about $3,400 in hand.
What counts as a supplemental wage
More than most people realise. IRS Publication 15 includes bonuses, commissions, overtime premiums, severance, back pay, retroactive raises, awards and prizes, accumulated sick pay, and taxable moving expense reimbursements.
If you are unsure whether a payment is a regular wage or supplemental, the default answer is supplemental.
Reducing the hit legitimately
You cannot change the withholding rate on a bonus. You can change how much of it is taxable.
Route it into your 401(k). Many plans let you set a separate deferral percentage for bonuses. Money deferred is not subject to federal income tax withholding at all. The 2026 limit is $24,500, with an additional $8,000 catch-up at 50 or older, and $11,250 instead for those aged 60 to 63 if the plan allows.
Use an HSA. If you have a qualifying high-deductible health plan, HSA contributions avoid federal income tax and Social Security and Medicare — one of very few deductions that dodges all three.
Fix your W-4 instead of chasing the bonus. If bonuses regularly leave you with a large refund, the real problem is your ongoing withholding, not the bonus rate.
When you get it back
If 22% exceeded your actual marginal rate, the difference returns as part of your refund when you file. You do not need to do anything special to claim it — it is simply part of the annual reconciliation between what was withheld and what you owed.
Common questions
What is the bonus tax rate for 2026?
There is no separate bonus tax rate. Bonuses are withheld at a flat 22% federally under the percentage method, rising to 37% on cumulative supplemental wages above $1 million. The bonus itself is taxed as ordinary income at your marginal rate when you file.
Why was my bonus taxed at 40%?
The 22% federal withholding is only part of it. Social Security at 6.2%, Medicare at 1.45%, and state and local income tax stack on top, which commonly brings total withholding to between 30% and 40%.
Do I get bonus tax withholding back?
If the 22% withheld exceeds your actual marginal rate for the year, the excess comes back as part of your refund when you file. If your marginal rate is higher, you will owe the difference.
How can I avoid tax on my bonus?
You cannot avoid the tax, but you can reduce taxable income by directing the bonus into a traditional 401(k), up to the 2026 limit of $24,500, or into an HSA if you have a qualifying high-deductible health plan.