Bonus Tax Rate & Supplemental Wages (2026)
That year-end bonus or commission check often shocks employees: the tax taken out looks nothing like their regular paycheck. That is because the IRS treats supplemental wages — bonuses, overtime lumps, commissions, severance, and awards — under special withholding rules in 2026. This guide explains the flat-rate and aggregate methods, why your bonus may be taxed at 22%, and how the 0.9% Medicare surtax and the $1M threshold change things.
What Counts as Supplemental Wages
Supplemental wages are payments outside your regular salary or hourly wages: bonuses, commissions, overtime (when paid separately), severance, back pay, sick-pay leave, and non-cash awards. They are still ordinary income and still subject to FICA. The difference is only in how withholding is calculated, not the ultimate tax. The FICA guide covers the payroll tax side.
The Flat 22% Method
If a bonus is identified separately from regular wages and your regular payroll is reasonable, employers usually withhold federal income tax at a flat 22% on supplemental wages up to $1,000,000. This is simpler than the regular bracket math and is why a bonus "feels" taxed at 22%, even though your true marginal rate may differ. FICA is still withheld on top at 6.2%/1.45% as applicable.
The Aggregate Method
If the bonus is combined with regular wages in the same check, or if the employer does not separately identify it, the aggregate method applies: the employer adds the supplemental amount to regular wages and withholds as if it were a single larger payment, using the regular formula and your W-4. This can withhold more or less than the flat method depending on your bracket.
The $1 Million Threshold
Once supplemental wages in a year exceed $1,000,000, the portion above $1M is withheld at the top 37% rate (the mandatory flat rate for large supplemental amounts), not 22%. Below $1M the 22% flat rate generally applies. This clawback ensures very large bonuses are withheld near the top bracket immediately.
Why Your Bonus Feels Smaller
A $5,000 bonus withheld at 22% loses $1,100 to federal income tax, plus about 7.65% FICA ($382) if you are below the Social Security base, leaving roughly $3,500 net. The withholding is just a prepayment; your actual tax on the bonus is computed at filing using your real bracket, so an over-withheld bonus may come back as part of your refund.
Medicare Surtax on Bonuses
Bonuses count toward the $200k/$250k/$125k thresholds for the 0.9% Additional Medicare Tax. If your total wages cross the line, the 0.9% applies to the portion above it, including bonuses. High earners should expect a small extra Medicare bite on large supplemental payments. The tax guide details the surtax.
State Treatment of Bonuses
States vary: some use a flat supplemental rate, others fold bonuses into regular wages. In no-income-tax states (see the tax guide) there is no state withholding on the bonus. In high-tax states the bonus can face both the state rate and the federal 22%, shrinking it further. The Net Pay Calculator models combined withholding.
Commissions Are Supplemental Too
Commission pay follows the same rules. If your commissions are paid separately and identified, the 22% flat method often applies; if rolled into a regular draw or combined check, aggregate applies. The commission guide covers how commission structures affect your annual take-home beyond withholding.
Planning Around Bonus Withholding
Because 22% is a withholding rate, not your final tax, you usually do not need to "avoid" it — over-withholding simply comes back at filing. If you consistently get large refunds, adjust your W-4 to keep more in each check. If a huge bonus pushes you into under-withholding elsewhere, add Step 4c extra withholding.
Why 22% Is Just a Prepayment
The 22% flat rate on a bonus is withholding, not your final tax. At filing, the bonus is added to your other income and taxed at your real marginal rate. If that rate is 12%, the extra 10% withheld comes back as part of your refund; if it is 24%, you may owe a little more. The tax guide explains brackets so you can predict the true cost. A big refund from over-withheld bonuses is an interest-free loan to the government.
Worked Bonus Example
A $10,000 bonus withheld at 22% sends $2,200 to federal income tax, plus about $765 FICA if you are below the Social Security base, leaving roughly $7,035 net. If your true marginal rate is 12%, about $1,000 of that withholding returns at filing. Use the Net Pay Calculator to estimate, and tune your W-4 so you keep more each check instead of waiting for a refund.
Bonuses and the Medicare Surtax
If total wages cross $200,000 (single) / $250,000 (joint), the 0.9% Additional Medicare Tax applies to the portion above the threshold, bonuses included. High earners should expect a small extra Medicare line. The FICA guide details the surtax thresholds and how they interact with the bonus withholding.
State Bonus Treatment
States vary: some use a flat supplemental rate, others fold bonuses into regular wages, and no-income-tax states take nothing. In a high-tax state the bonus can face both the state rate and the federal 22%, shrinking it further. Check your state in the tax guide and model combined withholding with the Net Pay Calculator.
Aggregate vs Flat: Which Hits You
If your bonus is paid in the same check as regular wages, the aggregate method may withhold more than the flat 22%, because the combined amount pushes part of the check into a higher bracket temporarily. If the bonus is a separate check, the 22% flat method usually applies. The difference is timing, not final tax — it settles at filing. The tax guide explains brackets so you can predict whether a big combined check withholds too much or too little.
Bonus and the Regular-Rate Overtime Link
Nondiscretionary bonuses are part of the FLSA regular rate, so a bonus can raise your overtime pay if you are nonexempt. A $2,000 expected annual bonus allocated across workweeks adds to the regular rate and thus to OT. Excluding it is a common underpayment. The overtime guide walks the regular-rate math; the W-4 guide covers withholding separately from the bonus.
Planning a Large Bonus
For a bonus over $1,000,000, the 37% rate above that line is steep but only on the excess; the first $1M is still 22%. If you expect a huge bonus, consider adjusting other withholding (Step 4c on the W-4) to avoid a surprise, and remember the 0.9% Medicare surtax may also apply above thresholds. The Net Pay Calculator models the combined hit so the net is no mystery.
True Take-Home of a Bonus
After 22% federal and ~7.65% FICA (if below the base) plus any state rate, a bonus commonly nets 60%–70%. A $10,000 bonus may deliver $6,000–$7,000. Treat it as a lump you can direct to debt, savings, or a planned purchase rather than everyday spending, since the withholding already removed the tax. The gross vs net guide frames the broader deduction stack.
Discretionary vs Nondiscretionary Bonuses
A discretionary bonus — a surprise spot award — is not part of the regular rate and not promised, so it rarely affects overtime; a nondiscretionary bonus — a contractual or expected one — is. The label your employer uses changes both withholding and OT. The overtime guide walks the regular-rate effect; the commission guide covers the same split for variable pay.
Sign-On and Retention Bonuses
Sign-on and retention bonuses are supplemental wages, usually flat-taxed at 22% when separate from regular pay, and often recoverable if you leave inside the clawback window. Read the agreement before counting the net as yours. The gross vs net guide shows how the 22% plus FICA shapes take-home; the Net Pay Calculator models the combined hit on a separate bonus check.
Spot Awards and Gift Cards
Small spot awards and gift cards under $100 are often exempt from the supplemental rules and may be taxed differently or not at all as a de minimis benefit; larger ones are wages. The FICA guide notes the Social Security base still applies once total wages cross it; the W-4 guide covers withholding separately from the bonus type.
Year-End Bonus and the January Check
A December bonus paid in January is taxable in the year received, which can shift which year's bracket applies — useful if your income differs across years. The tax guide explains timing; the 401(k) calculator can show whether a bigger deferral that year offsets the bonus. Plan the bonus, do not just celebrate it.
Bonus Clawbacks and Repayment
If you leave during a clawback period, the employer may reclaim a portion of the bonus; if already taxed, you claim the repaid amount as a deduction or credit in the year of repayment. The 1099 guide covers a similar "returned income" idea for contractors; the garnishment guide is unrelated but shows why written pay terms protect you.
A Bonus Worked Example
A $10,000 bonus paid separately is flat-taxed at 22% federal ($2,200) plus about 7.65% FICA if below the base ($765) and a state rate, netting roughly $6,500–$7,000. The same bonus folded into a regular check may withhold more via the aggregate method. The Net Pay Calculator models both; the tax guide explains brackets so you can predict whether a big combined check withholds too much or too little before you spend the net.
Your Bonus Checklist
Before a bonus, confirm: is it paid separately (flat 22%) or aggregated? Is it discretionary (no OT effect) or nondiscretionary (raises the regular rate)? Is any part a recoverable draw or clawback? The overtime guide covers the regular-rate link; the W-4 guide shows how Step 4c can offset a huge bonus so April is never a surprise, and the gross vs net guide frames the deduction stack.
Myths About Bonus Tax
A bonus is not "taxed at 22%" as a final fact — that is only the withholding rate, and it settles at filing; a combined check can withhold more via the aggregate method; and a bonus over $1M is taxed at 37% only on the excess. The tax guide explains brackets; the gross vs net guide frames the deduction stack so you expect the real net instead of fearing the 22% as the whole story and assuming the rest vanishes permanently.
Next Steps and the Calculators
Model a separate bonus check with the Net Pay Calculator to see the true net, and use Step 4c on the W-4 to offset a huge bonus. The overtime guide covers the regular-rate link for nondiscretionary bonuses; once you know the net, direct the bonus to debt or savings rather than everyday spending, since withholding already removed the tax before it reached you.
Key Takeaways
In 2026 supplemental wages (bonuses, commissions, severance) are withheld at a flat 22% up to $1,000,000 and 37% above it, unless combined with regular pay (aggregate method). FICA still applies on top, and the 0.9% Medicare surtax can too. The 22% is just prepayment — your true tax is set at filing. Model it with the Net Pay Calculator and tune via the W-4 guide.
Frequently Asked Questions
Related Reading
Figures are 2026 estimates for guidance only. See the 50 State Wage Guides for local detail.