Supplemental wages
The IRS employer's guide, Publication 15, calls any pay that is not regular wages supplemental wages, and lists what it has in mind: bonuses, commissions, overtime pay, accumulated sick leave, severance, awards, prizes, back pay, retroactive raises and payments for nondeductible moving expenses. Employers may choose to treat overtime and tips as regular wages. Everything on the list is taxable income on your return exactly like salary; the special rules are only about withholding, the estimated tax the employer sends in on your behalf during the year.
The two withholding methods
| How the bonus is paid | Method | What is withheld |
|---|---|---|
| Separately, or on the same check but identified separately | Optional flat rate | A flat 22 percent of the bonus for federal income tax, no other percentage allowed, as long as income tax was withheld from your regular wages this year or last |
| Combined with regular wages, not separately identified | Aggregate method | The employer adds the bonus to the regular wages and withholds on the total as one regular payroll payment, using your Form W-4 |
| Any way, once supplemental wages exceed US$1 million in the year | Mandatory rate | 37 percent on the excess over US$1 million, regardless of the W-4 |
Whatever the method, Publication 15 adds that the bonus is also subject to Social Security, Medicare and federal unemployment tax. So the employee's Social Security tax of 6.2 percent (up to the $184,500 wage base in 2026) and Medicare tax of 1.45 percent come off as well, plus state income tax where there is one.
A worked example
A $5,000 bonus paid separately in 2026, federal taxes only:
| Line | Amount |
|---|---|
| Bonus | $5,000 |
| Federal income tax withheld, flat 22% | −$1,100 |
| Social Security, 6.2% | −$310 |
| Medicare, 1.45% | −$72.50 |
| Paid out | $3,517.50 |
About 30 percent is gone before the bonus reaches the account. The paycheck calculator adds the state income tax for your state, and the paycheck deductions guide explains each line.
What the bonus really costs in tax
The 22 percent is a withholding rate, not a tax rate. On the return, the bonus is simply added to the year's income and taxed at the rates that income falls into. Compared with the $1,100 withheld, here is the federal income tax a $5,000 bonus adds for a single filer whose bonus falls entirely within each 2026 bracket:
| Marginal bracket | Tax on the bonus | Versus the $1,100 withheld |
|---|---|---|
| 10% | $500 | $600 over-withheld, back as refund |
| 12% | $600 | $500 over-withheld, back as refund |
| 22% | $1,100 | exact |
| 24% | $1,200 | $100 under-withheld, due at filing |
| 32% | $1,600 | $500 under-withheld, due at filing |
| 35% | $1,750 | $650 under-withheld, due at filing |
| 37% | $1,850 | $750 under-withheld, due at filing |
Someone in the 12 percent bracket gets most of the difference back as a refund; someone in the 32 percent bracket owes the shortfall in April. The bracket guide shows where the thresholds sit, and because a bonus is added on top of salary, part of it can straddle two brackets. Social Security and Medicare are not refunded; they are the real cost on every dollar of wages.
Ways to keep more of it
- Put part of it into the 401(k). A pre-tax contribution from the bonus escapes federal income tax now; the 2026 limit is $24,500. The 401(k) calculator shows what a one-off contribution grows to, and the 401(k) vs IRA guide compares the accounts. Social Security and Medicare still apply to the contributed amount.
- Adjust the W-4 if the bonus is predictable. Heavy over-withholding every year is an interest-free loan to the Treasury; the W-4 guide covers the extra-withholding and adjustment lines.
- Do the percentage once. The percentage calculator turns a gross bonus into the expected net, and the salary converter shows what a bonus adds to an hourly or monthly rate.
Frequently asked questions
Are bonuses taxed at a higher rate?
No. A bonus is ordinary income and ends up taxed at your normal bracket rate on your return. What is different is the withholding: IRS Publication 15 lets an employer withhold a flat 22 percent from a bonus paid separately, which is more than many people's bracket and less than others'. The difference is settled when you file.
What counts as supplemental wages?
Publication 15 says supplemental wages are payments that are not regular wages and lists bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases and payments for nondeductible moving expenses. Employers may treat overtime and tips as regular wages instead.
Why was 22 percent taken from my bonus?
Because your employer paid it separately from regular wages and used the optional flat rate. Publication 15 allows a flat 22 percent, and no other percentage, on supplemental wages of US$1 million or less in the year, provided income tax was withheld from your regular wages in the current or the previous year. Social Security and Medicare come off on top.
What if the bonus is paid with my regular paycheck?
Then the aggregate method applies: the employer adds the bonus to the regular wages and withholds on the total as if it were one regular paycheck, using your Form W-4. For a large bonus that can push a single paycheck into a higher withholding bracket than usual, which again is corrected at filing.
Is there a different rate above US$1 million?
Yes. Once an employee's supplemental wages in a calendar year exceed US$1 million, Publication 15 requires withholding at 37 percent on the excess, regardless of what the Form W-4 says.
Sources
- IRS Publication 15 (Circular E), Employer's Tax Guide, for use in 2026: section 7, Supplemental wages (definition and examples; the optional flat 22 percent on amounts of US$1 million or less paid separately; the aggregate method; mandatory 37 percent on the excess over US$1 million; Social Security, Medicare and FUTA still apply)
- IRS Revenue Procedure 2025-32: 2026 tax rate tables (PDF)