Why Your Bonus Feels Overtaxed (And What the IRS Actually Takes)
Bonuses aren't taxed at a special rate — they're withheld at one. Here's the difference, plus how to fix over-withholding.
Withholding ≠ your final tax rate
The IRS gives employers two ways to withhold on bonuses: the flat 22% supplemental rate, or the aggregate method (adding it to your regular paycheck and using normal withholding tables). Most employers pick the flat method — it's simpler.
That 22% is not your final tax rate. If your marginal bracket is 12%, you'll get the difference back at tax time. If your marginal bracket is 32%, you'll owe extra.
The million-dollar cliff
Cumulative supplemental wages above $1,000,000 in a year are withheld at 37% on the excess. This mostly hits senior executives and large equity vests.
FICA and state also apply
Bonuses are still wages, so 6.2% Social Security (up to the wage base), 1.45% Medicare, and your state's income tax rate all apply on top of federal withholding.
How to avoid a surprise refund or bill
If you regularly get big refunds because of bonus over-withholding, use W-4 Step 4b to declare extra deductions, or lower any Step 4c extra withholding. The IRS estimator handles bonuses cleanly.