Bonus Tax Rate: How Are Bonuses Taxed?
Written by
Erin Gobler
Edited by
Emily Gadd
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When you get your bonus check, it may feel like you’re getting taxed higher than normal. But what’s actually happening is that the government is withholding more money. Withholding refers to the money that’s taken out of your check, not the taxes you’ve paid.
When you file your taxes, your bonus will be combined with your regular income and taxed at the regular rate. For some people, this could mean getting the money that was withheld back as a tax refund.
You will still have to pay FICA and income taxes on your bonus. Depending on the state you live in, you might also have to pay state taxes on your bonus.
What Is the Withholding Rate for a Bonus?
Bonuses are considered supplemental income by the IRS. For supplemental wages under $1 million, the tax withholding rate is a flat 22%. If you receive more than $1 million in supplemental wages, 37% will be withheld.
Supplemental Wages
Bonuses are just one type of income that the IRS considers a supplemental wage. Here are some other examples:
Tax Withholding on Supplemental Income
Your employer gets to choose between two different methods for withholding taxes on bonuses: the percentage method and the aggregate method.
The Percentage Method
The percentage method is how your bonus is taxed if it’s given on a separate paycheck from your regular wages. They must also use it if your bonus is higher than $1 million.
Assuming you receive less than $1 million in supplemental wages throughout the year, your bonus will be subject to a flat federalwithholding rate of 22%.
If your total supplemental wages are above $1 million, then your federal withholding rate is 37%.
The Aggregate Method
The aggregate method is used when an employer pays a bonus on the same paycheck as your regular wages. This method is more complex and usually results in a higher percentage of money being withheld.
When using the aggregate method, an employer must combine your bonus and your regular wages and calculate your taxes as if that’s the amount you earn each paycheck.
State Taxes on Bonuses
You might also have to pay state taxes on your bonus. The state tax rate varies based on where you live, and the withholding rules of that state. Here are some examples of how states tax bonuses:
| State | Bonus Tax Rate |
|---|---|
| Alabama | 5% |
| North Dakota | 1.84% |
| New York | 11.70% |
If you expect to receive any bonuses this or any other year, check your local bonus withholding rate.
Other Deductions
Besides the federal and state supplemental income tax, your bonuses may also be subject to a combined FICA tax rate of 7.65%. FICA tax breaks down as follows:
- Social Security tax is 6.20% This applies to regular and supplemental wages on the first $176,100 (up from $168,600 in 2024) of your total earnings.
- Medicare tax is 1.45%. This applies to all wages, including supplemental income like bonuses.
You will have to pay an extra 0.9% in Medicare taxes if you made:
- $200,000 or more as a single filler
- $125,000 as a married person filing separately
- $250,000 as a married person filing jointly
Preparing for a Bonus: Tips To Know
Here are some tips to prepare for a bonus:
- Find out how you’ll get the your bonus. That way you can find start to figure out the tax withholding.
- Estimate your taxes. You can do this buy figuring out the income bracket you will be put in when you’re regular and supplemental income is combined.
- Adjust your W-4. You can change your tax withholdings at any time.
How to Reduce Bonus Taxes
Now that you know how bonuses are taxed, the next step is to find ways to reduce your tax liability. Not only will this help reduce the taxes on your bonus, but it could also help keep you in a lower tax bracket. Here are a few ways to do that:
- Defer your bonus check: You may be able to request that your employer defer your bonus until the new year.
- Contribute to pre-tax accounts: Putting money into a 401(k), traditional IRA, health savings accounts and flexible spending accounts reduces your taxable income and, therefore, your tax liability.
- Take advantage of other deductions: An accountant or good tax software can help you ensure you’re claiming all the deductions you’re eligible for.
Impact on Total Taxes
Bonuses are combined with your regular income and may push you into a higher tax bracket.
If your bonus does put you into a higher income tax bracket, you may have a greater tax liability for the year. You can learn more about your tax withholding rate on your W-4 form. Or you can use the IRS Tax Withholding Estimator tool to find out how your bonus will impact your overall taxes.
FAQ
Here are the answers to some of the most frequently asked questions regarding taxes and bonuses.- Is my bonus taxed at 40%?
- Bonuses under $1 million have 22% withheld. Bonuses over $1 million are subject to 37% withholding. However, your bonus will be taxed at the regular income tax rates and you may get the money that was withheld back as a tax refund.
- Why is my bonus taxed at 35%?
- If your supplemental income totaled over $1 million for the year, 37% is withheld.
- Otherwise, the tax on your bonus may have been calculated using the aggregate method, if it was paid on the same paycheck as your regular income. This may increase the percentage of your bonus withheld for taxes. You can potentially get that money back as a refund after you file your taxes.
- Is a bonus taxed differently than salary?
- Bonuses are considered supplemental wages, meaning the government will withhold a different percentage of money than they do from your regular salary. However, you will pay the same income tax rate on your bonus and regular wages.
- What is the federal bonus tax rate for 2024?
- If your bonus or supplemental income is under $1 million, 22% will be withheld. If the yearly supplemental income is over $1 million, it is subject to 37% withholding. The withholding rate remains unchanged from last year.
- How do I avoid taxes on my bonus?
- You can't avoid taxes entirely, but you may be able to reduce your overall tax liability by contributing to pre-tax accounts (like an IRA or 401k). If you expect to fall into a lower income bracket next year, you could always request a bonus deferral as well.
Angela Mae and Caitlyn Moorhead contributed to the reporting for this article.
Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
- IRS. "IRS provides tax inflation adjustments for tax year 2024."
- IRS. "Publication 15 (2024), (Circular E), Employer's Tax Guide."
- Alabama Department of Revenue. "Individual Income Tax."
- PayrollOrg "Arkansas and North Dakota Issue Revised Withholding Tables"
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- IRS. "Household Employer's Tax Guide."
- Social Security Administration. "Contribution and Benefit Base."
- New York State Department of Taxation and Finance. "New York State Withholding Tax Tables and Methods"
- IRS. "Tax Withholding Estimator."
- IRS. "Topic no. 560, Additional Medicare tax"
