How Bonus Pay Is Taxed in the US (2026): The 22% Supplemental Rate & Aggregate Method

Few payroll moments confuse people more than a bonus check. You are promised $5,000, but only about $3,300 lands in your account — and you wonder whether the government really takes 40% of your bonus. The short answer: it does not. Your bonus is withheld at a higher rate, not taxed at a higher rate. In 2026 the IRS supplemental wage withholding rate is a flat 22% on bonuses up to $1 million for the year, rising to 37% on any portion above $1 million (IRS Publication 15, 2026, Section 7). On top of that come Social Security, Medicare, and (in most states) state income tax. This guide explains exactly how bonus taxation works, with the real rates and the official sources behind them.

What Counts as a “Supplemental Wage”?

The IRS treats a bonus as a supplemental wage — compensation paid outside your normal salary or hourly pay. Publication 15 (2026) lists common examples: bonuses, commissions, severance pay, accumulated sick-leave and vacation payouts, retroactive pay increases, back pay, awards, and prizes. Taxable fringe benefits and income from exercising nonqualified stock options also qualify (26 CFR 31.3402(g)-1). The classification matters because supplemental wages get their own withholding rules, separate from the graduated tables used on your regular paycheck.

The 22% Flat Supplemental Rate (and 37% Above $1 Million)

For 2026, the IRS withholding rate on supplemental wages is 22% (or 37% if supplemental wages paid to an employee during the calendar year exceed $1 million). The One Big Beautiful Bill Act (P.L. 119-21) permanently extended the individual tax rates from the Tax Cuts and Jobs Act, which is why the 22% and 37% supplemental rates carry forward into 2026 (IRS Publication 15, 2026, Section 7). The 37% rate is mandatory on every dollar above $1 million — an employer cannot choose a different method once you cross that threshold, even if you filed a Form W-4 claiming exemption from withholding.

• Supplemental wages up to $1,000,000 in the calendar year: 22% flat (optional) or aggregate method
• Portion of supplemental wages above $1,000,000 in the calendar year: 37% mandatory flat rate
• Backup withholding rate (reportable payments): 24% for 2026

Two Withholding Methods: Flat Rate vs. Aggregate

The IRS gives employers two approved ways to withhold federal income tax on supplemental wages below $1 million:

1. Flat Rate Method

The employer withholds a flat 22% from the supplemental payment. It applies when the supplemental wages are paid on a separate check or clearly identified as a separate line item on the pay statement, and the employer has withheld federal income tax from the employee’s regular wages at some point in the current or preceding calendar year. Example: a $5,000 bonus withheld at 22% removes $1,100 in federal income tax, leaving $3,900 before other deductions. The flat method is simpler but often over-withholds for lower earners and under-withholds for higher earners.

2. Aggregate Method

The employer adds the bonus to your regular wages for that pay period and calculates withholding on the combined total using your Form W-4 and the 2026 Percentage Method tables in Publication 15-T. The withholding that would have applied to regular pay alone is subtracted, and the remainder is treated as the withholding on the bonus. This method is required when the bonus is not separately identified from regular wages, and it can produce more or less withholding than 22% depending on your bracket.

The 22% Is Withholding, Not Your Tax Rate

This is the single most important point: the 22% is a withholding rate, not your final tax rate. The 22% flat rate lines up with the 2026 federal bracket for single filers earning about $50,400–$105,700 ($100,800–$211,400 for married couples filing jointly). If your marginal rate is 12%, the flat method over-withholds and you recover the difference as part of your refund. If your marginal rate is 32% or 35%, it under-withholds and you may owe more at filing. Either way, a bonus does not change your overall tax bracket — it is simply added to your other income on your return.

FICA Tax Still Applies to Your Bonus

Federal income-tax withholding is only part of the story. Your bonus is also subject to FICA:

• Social Security (6.2%): applies to your bonus up to the 2026 wage base of $184,500. Once your combined regular wages plus bonus for the year exceed $184,500, no more Social Security tax is withheld.
• Medicare (1.45%): applies to the entire bonus with no wage base cap.
• Additional Medicare Tax (0.9%): applies above $200,000 ($250,000 married filing jointly) once combined wages cross that threshold for the year.

So a typical employer bonus loses roughly 22% (federal) + 6.2% (Social Security, until the wage base is reached) + 1.45% (Medicare) + state tax before you see it — which is why the “40%” feeling appears. Employers must begin withholding the 0.9% Additional Medicare Tax once wages exceed $200,000 in the calendar year, regardless of filing status (IRS Publication 15, 2026).

State Income Tax on Bonuses

In most states, bonuses are taxable wage income. States with no individual income taxdo not tax bonuses: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming (New Hampshire effectively does not tax wages). Other states either apply a flat supplemental rate or withhold on the combined pay. As reported by payroll publishers, a few representative state supplemental rates for 2026 are California at 10.23%, Illinois at 4.95%, and Pennsylvania at 3.07% — always confirm the current rate with your state Department of Revenue, because these can change.

Worked Example: A $5,000 Bonus

Assume a single employee in a state with income tax, below the Social Security wage base, with regular federal withholding already in place:

• Federal supplemental withholding: $5,000 × 22% = $1,100
• Social Security: $5,000 × 6.2% = $310
• Medicare: $5,000 × 1.45% = $72.50
• State (say 5%): $5,000 × 5% = $250
• Total withheld: $1,732.50 → about $3,267.50 net

The employee’s actual federal tax on that $5,000 is determined at filing time by their total annual income and deductions. If their marginal rate is 12%, they will get roughly $500 of the federal withholding back as a refund.

Can You Reduce the Tax on a Bonus?

A few levers exist. If your employer’s 401(k) plan allows deferrals from bonuses, electing to defer part or all of the bonus pre-tax reduces federal (and usually state) income-tax withholding on the deferred amount. Social Security and Medicare still apply, because 401(k) deferrals are not FICA-exempt. Not all plans permit bonus deferrals, and the election generally must be made before the bonus is paid. Beyond that, you cannot change your W-4 retroactively to shrink a bonus’s withholding — the supplemental rates apply by rule.

Where This Fits in the PayCalcFig Cluster

Bonus taxation connects directly to our other payroll guides. The FICA math uses the same 2026 Social Security wage base of $184,500 and the FICA breakdown. Your take-home from a bonus depends on your Form W-4 elections, and on whether you use pre-tax 401(k) deferrals. Model any scenario with the Bonus Tax Calculator.