Bonus tax calculator

Your bonus was not taxed at 40% — it was withheld at a flat rate

A bonus arrives noticeably smaller than expected and the conclusion is always the same: bonuses are taxed more. They are not. A bonus is ordinary wages, taxed at exactly the same rates as your salary. What differs is withholding, and withholding is not tax.

Employers commonly use the flat-rate method for supplemental wages: 22.00% of the bonus for federal income tax, regardless of your bracket. On a $10,000 bonus that is $2,200 withheld — against $2,200 of tax actually owed by someone earning $85,000.

That is $0 less than owed, which is still due on the return. The bonus was under-withheld, and the gap turns up in April.

On top of the flat rate come FICA at 7.65% and your state's own withholding, which is why the total deduction from the cheque can approach 40% even though the tax rate on the money is nothing like that. Three separate charges, one visible number.

The alternative method some employers use is the aggregate method: the bonus is added to your regular pay for that period and withheld as though you earned that much every period. That can withhold even more aggressively, and it is the reason a bonus in a single paycheck sometimes looks catastrophically taxed.

The rules that change at higher amounts

Supplemental wages above $1,000,000 in a year are withheld at 37.00% — the top marginal rate — on the excess. This is mandatory rather than optional for the employer, and it is the one case where withholding on a bonus matches the actual rate reasonably well.

The Social Security ceiling changes the arithmetic in the other direction. Above $184,500 of wages for the year the 6.20% stops, so a bonus paid after you have crossed it carries only Medicare — which makes an identical bonus meaningfully larger in December than in February.

The additional Medicare tax runs the opposite way: 0.90% above $200,000 of wages. Employers must start withholding it once your wages with them pass $200,000, regardless of filing status — which over-withholds a married couple filing jointly and under-withholds a single filer with two jobs.

Deferring a bonus into the next tax year, where the employer allows it, changes which year's brackets apply. That is worth something only if your income is genuinely different between the two years, and non-qualified deferred compensation has strict rules that make informal arrangements risky.

Directing a bonus into a 401(k) is the reliable lever. It avoids income tax at your marginal rate on the amount contributed, though not FICA, and for someone whose bonus pushes them into a higher bracket it is the cleanest way to keep it out of that bracket entirely.

What a bonus really costs you

The honest calculation is a difference, not a rate. Compute your tax with the bonus and without it; the gap is what the bonus cost. On $85,000 of salary, a $10,000 bonus adds $2,200 of federal income tax and $765 of FICA.

That works out to an effective 29.65% of the bonus in federal terms — not the 22.00% withheld, and not the 40% it felt like. Your state's rate goes on top of that.

A bonus can push part of your income into a higher bracket, and only the part that crosses is taxed at the higher rate. It cannot make you worse off: there is no amount of bonus that leaves you with less money than refusing it would have.

Where a bonus genuinely does cost more than its face rate is at a phase-out. Credits and subsidies that taper with income — the Child Tax Credit, the EITC, the ACA premium subsidy — can take more than a dollar per dollar earned through the taper range, and a bonus that lands in one is the case where "it pushed me into a worse position" is actually true.

The practical response, if the withholding annoys you: nothing, in most cases. It settles on the return. If it is a large bonus and you would rather not wait, a W-4 adjustment for the remainder of the year recovers it in your regular pay instead of in April.

Four ways a bonus estimate goes wrong

Treating 22.00% as the tax rate. It is a withholding convention for supplemental wages. What you owe is your marginal rate on the amount, and the difference settles on the return in whichever direction it falls.

Forgetting FICA on top. 7.65% applies to a bonus like any other wages — unless you have already passed the $184,500 Social Security ceiling, in which case only Medicare applies and the bonus is larger.

Assuming the whole bonus is taxed at your new bracket. Only the portion that crosses into a higher bracket is taxed at the higher rate. The rest stays where it was.

Ignoring the state. State withholding on supplemental wages often uses its own flat rate, different from both the federal one and from your actual state marginal rate — so the state line on a bonus is frequently the one that is furthest from what is actually owed.

When a bonus is paid changes what it costs

Tax is annual, so a bonus belongs to the year it was received rather than the year it was earned. A bonus for last year's performance paid in February is this year's income, which matters whenever the two years differ.

Where an employer offers a genuine choice of timing, the question is which year has the lower marginal rate. Someone leaving a job, taking unpaid leave, starting a business or retiring mid-year has a materially lower rate in one of the two years, and moving the bonus into it saves the difference at no cost.

The constraint is constructive receipt: you cannot defer income you had an unrestricted right to take. Telling payroll in December to hold your bonus until January does not work if it was already available to you. A deferral has to be elected before the income is earned, under an arrangement that meets the rules for non-qualified deferred compensation — and those rules carry severe penalties when they are not met.

Within a single year, timing still matters for cash flow through the Social Security ceiling. Above $184,500 of wages the 6.20% stops, so an identical bonus paid in November nets more than one paid in March even though the annual tax is unchanged.

And a bonus paid alongside a regular paycheck rather than separately is often withheld by the aggregate method, which treats the combined amount as though you earned it every period. That withholds far more aggressively than the flat rate, and it is the single commonest reason a bonus appears to have been taxed at half.

Comparing an offer with a bonus against one without

Two offers, one with a higher salary and one with a lower salary plus a bonus, are not comparable at face value even before tax. A bonus is usually discretionary, usually conditional on still being employed on the payment date, and usually not counted for retirement matching or for pay rises calculated as a percentage.

The tax treatment is identical, which is the part people assume is the difference and is not. $10,000 of bonus and $10,000 of extra salary produce exactly the same annual liability — $2,200 of additional federal income tax on this salary. Only the withholding timing differs.

What genuinely differs is everything around it. An employer retirement match is usually a percentage of eligible compensation, and whether a bonus counts as eligible varies by plan. Salary is what a mortgage lender underwrites; a bonus counts only with a documented history, often two years of it. And a redundancy payment calculated on base pay ignores bonus entirely.

A signing bonus adds its own trap: clawback provisions requiring repayment if you leave within a period, and repayment is usually of the gross amount while you only ever received the net. Recovering the tax paid on money you had to give back is possible but awkward, and it is worth reading the clause before treating the money as yours.

The comparison worth running is total expected compensation with the bonus discounted for the probability of receiving it, then run through take-home on both offers. This calculator handles the second half; only you can judge the first.

What else counts as supplemental wages

The flat withholding rule is not limited to bonuses. Commissions, overtime paid separately, back pay, severance, accumulated leave paid out, prizes and awards, and retroactive pay increases are all supplemental wages and can all be withheld the same way.

Severance is the one that causes the most distress, because the amounts are large and arrive when income is about to fall. Withheld at the flat rate on a payment representing several months of salary, it often over-withholds substantially — and the refund arrives the following spring, exactly when someone between jobs least wants to wait for it.

Accumulated leave paid at termination behaves the same way, and the two together can make a final paycheck look punitively taxed when the annual liability may in fact be lower than a normal year's.

Commission-based pay has the opposite problem across the year. Uneven monthly amounts confuse the regular withholding tables, which assume this period repeats, so a good month over-withholds and a poor month under-withholds. It roughly averages out, but "roughly" can be several thousand dollars in either direction by December.

In all these cases the response is the same and it is not to argue with payroll: work out the annual liability, compare it against what has been withheld year to date, and if there is a large gap in either direction, adjust the W-4 for the remaining periods rather than waiting for April.

Equity that arrives as a bonus in everything but name

Restricted stock units are taxed as ordinary income when they vest, on the market value that day, and are treated as supplemental wages for withholding — which means the same flat rate applies to something that may be worth far more than a cash bonus.

The mechanism most employers use is sell-to-cover: enough shares are sold at vest to fund the withholding. If the flat rate is below your marginal rate, that undersells the tax and leaves you owing the difference in April on income you received as shares rather than as cash. It is the most common source of unexpected large bills among people with equity compensation.

Anything you keep after vesting starts a new holding period at the vest-day value, so subsequent movement is capital gain or loss rather than wages. Shares held more than a year from vesting qualify for the long-term rate; shares sold immediately produce essentially no gain, because the basis is what you were just taxed on.

Stock options work differently and the two types differ from each other. Non-qualified options are taxed as ordinary income on the spread at exercise, again as supplemental wages. Incentive stock options are not taxed as ordinary income at exercise at all, but the spread is an adjustment for alternative minimum tax — which is one of the few places where AMT still reaches ordinary people, and it can produce a bill on shares that were never sold and may have since fallen.

None of this is modelled by the calculator on this page, which handles cash bonuses. Equity compensation of any size is the clearest case on this site for professional advice rather than a calculator, and we would rather say so than produce a confident number for a situation we did not model.

The same bonus, three salaries

The same $10,000 bonus, three different salaries, to show why a single answer to "how much is a bonus taxed" does not exist.

On $45,000: marginal rate 12.00%, so the bonus adds $1,200 of federal income tax and $765 of FICA. Withheld at the flat rate it loses $2,200 — $1,000 more than owed, which comes back.

On $85,000: marginal rate 22.00%, $2,200 of income tax and $765 of FICA. Now under-withheld by $0.

On $250,000: marginal rate 32.00%, $3,200 of income tax and only $235 of FICA — because this salary has already passed the $184,500 Social Security ceiling, so the bonus carries Medicare alone. The flat rate under-withholds by $1,000, which is owed in April.

Three salaries, three completely different outcomes, one withholding rate applied to all of them. That is the whole of the confusion in this category, and it is a withholding design decision rather than anything about how bonuses are taxed.

Directing a bonus into a retirement account

Many employers allow a separate deferral election for bonuses, distinct from your regular payroll percentage. Where that exists, it is the cleanest lever available on a bonus: the amount deferred avoids income tax at your marginal rate entirely.

The election generally has to be made before the bonus is paid, and sometimes well before. Discovering the option after the money has landed is too late, which is why it is worth asking payroll in advance of the month bonuses are normally paid rather than in it.

It does not avoid FICA. Social Security and Medicare are charged on the gross wages including the deferred amount, exactly as with regular 401(k) contributions — so the saving is your income tax marginal rate, not that plus payroll tax.

Where a bonus would push income into a higher bracket, deferring the portion that crosses is unusually efficient: you avoid tax at the higher rate on money you were not going to spend, and the contribution grows untaxed until withdrawal.

Watch the annual contribution limit, which the bonus deferral counts toward. Someone already contributing steadily through the year can find a large bonus deferral exceeds the limit, which creates a correction that is tedious to unwind — payroll systems usually cap it automatically, but not always.

Where the bonus withholding figures come from

Everything computed here rests on Treas. Reg. § 31.3402(g)-1, IRC § 3101, read off the law and the IRS revenue procedure rather than off a summary of either. Where a figure is indexed to inflation it comes from Rev. Proc. 2025-32, the same document that sets the brackets used across this site.

The indexed figures on this page are the federal brackets, the Social Security wage base — all published for 2026 and all checked on 2 September 2026. Each carries that date because a tax figure without one is unverifiable, and the commonest error in this category is a correct figure from the wrong year.

The flat supplemental withholding rate and the additional Medicare tax threshold are statutory and are not indexed. Thresholds that are not indexed are the ones compiled sources most often present as though they were current when they have simply never moved — which is a different kind of staleness and harder to spot.

What this page does not model is stated in full under the calculator rather than buried here: it models a cash bonus. Equity compensation — restricted stock units, non-qualified options, incentive stock options — is taxed on its own timetable and is not computed here. Where a case falls outside what the engine handles, we would rather say so than return a confident number for a situation we did not compute.

The arithmetic itself is deterministic — rates in, result out, with no model deciding anything. The AI explanation available on this site describes figures it was given and never produces one, which is the only arrangement in which a language model belongs anywhere near a tax calculation.

Questions

Why was my bonus taxed at 40%?

It was not taxed at 40% — it was withheld at 22.00% for federal income tax, plus 7.65% FICA and your state's own withholding. A bonus is ordinary wages taxed at your normal rates. On $85,000 of salary a $10,000 bonus actually costs $2,200 in federal income tax.

Do I get the over-withheld amount back?

Yes, as part of your refund when you file. Withholding is a prepayment, not the tax, and any excess returns. If the bonus is large and you would rather not wait until April, a W-4 adjustment for the rest of the year recovers it through your regular pay instead.

How can I reduce tax on a bonus?

Directing it into a traditional 401(k) or HSA avoids income tax at your marginal rate on the amount contributed — though not FICA. Where an employer allows deferral into the following year, that changes which year's brackets apply, but only helps if the two years genuinely differ. There is no method that avoids FICA on wages.

Is a bonus taxed differently from salary?

No. It is ordinary wages, taxed identically. Only the withholding method differs — the flat supplemental rate, or the aggregate method where the bonus is added to your regular pay and withheld as though you earned that much every period, which withholds even more aggressively.

Why was my December bonus bigger than my February one?

Probably the Social Security ceiling. Above $184,500 of wages for the year, the 6.20% stops until January, so a late-year bonus carries only Medicare. Nothing changed about your tax rate — the ceiling is annual and you crossed it.