How Are Bonuses Taxed?

How Are Taxes Withheld From a Bonus?

There are two methods for withholding federal taxes from a bonus: the flat-rate method and aggregate method.

• Flat-rate: The flat-rate method for taxing a bonus as income is 22%. On top of that, 6.5% of the bonus is subtracted for Social Security taxes and 1.45% is subtracted for Medicare taxes. Anyone receiving a bonus above $1 million pays 22% on the first $1 million, then 37% on the remainder of the money.
• Aggregate: With the aggregate method, your pay (regular wages) and your bonus (supplemental wages) are paired as a single payment in only one check. In this scenario, your normal income tax rate would apply. For the 2025 tax year, tax rates range from 10% to 37%, depending on your income bracket.

How Much Are Bonuses Taxed?

The flat-rate method is considered the simplest, most popular way to tax bonuses. But some taxpayers rely on the aggregate method.

Flat-Rate Tax Method Examples

Bonuses under $1 million are typically taxed at a flat rate of 22%.

Example: If you receive a bonus of $20,000, the flat federal tax rate of 22% would amount to $4,400.

If you receive a bonus above $1 million, you'd pay the 22% rate on the first million. Beyond that, the rate jumps to 37%.

Example: Let's say you earn a bonus of $1.5 million. The first $1 million would be taxed at 22%, resulting in a tax burden of $22,000. The remaining $500,000 would be taxed at 37%, resulting in a tax payment of $185,000. In total, your federal tax burden on a $1.5 million bonus would be $207,000.

Total Taxes Withheld on Various Bonuses

If you adopt the flat-rate tax method, you not only must pay income tax, but you must pay Social Security and Medicare taxes. Here are five scenarios for bonuses of different dollar amounts. In all of these scenarios, the 22% flat tax rate applies, along with a 6.2% Social Security tax and 1.45% Medicare tax.

For the 2025 tax year, the federal government capped the amount of earnings subject to the Social Security tax at $176,100.

Why Are Bonuses Taxed So High?

Because the IRS looks at bonuses as supplemental income instead of regular income, the tax rate for bonuses is higher. Typically, different rules apply to supplemental income, such as how taxes are withheld and reported.

Which States Charge Additional Taxes on Bonuses?

Based on where you live, your state might impose its own income tax on your bonus. The following chart shows the 20 states that tax supplemental income, such as bonuses, along with their 2025 tax rates.

How to Reduce Taxes on Your Bonus

You can take several approaches to reducing taxes on your bonus. Among them are:

• Depositing the money in a 401(k) or individual retirement account (IRA) to decrease your taxable income.
• Putting money in a health savings account (HSA) to lower your taxable income.
• Requesting that your employer, if you expect to be in a lower tax bracket next year, to defer the bonus to the following tax year.
• Putting your bonus toward out-of-pocket health care costs that can't be reimbursed. To take advantage of this benefit, you must itemize deductions.
• Donating some or all of your bonus to a charity to gain a tax write-off.

The Bottom Line

Unfortunately, a bonus you receive from your employer for solid revenue growth or outstanding job performance isn't free money. A bonus is taxed, since the IRS views it as income. In many cases, recipients of bonuses pay a 22% flat federal income tax, along with a 6.2% Social Security tax and 1.45% Medicare tax. Fortunately, you can reduce the tax burden of a bonus by, for example, putting at least some of the money in a 401(k), IRA or health savings account. To investigate the tax implications of a bonus, consider reaching out to your financial advisor or accountant.