How Bonuses Are Taxed

You were told $5,000. The deposit was $3,518. The gap is $1,482, and the usual reaction — reasonable, and wrong — is that bonuses get taxed at some punitive rate.

They don't. Here is the sentence that explains the entire situation:

22% is a withholding rate, not a tax rate.

Withholding is a prepayment. Your actual tax on that bonus is settled when you file, at the same rates as every other dollar you earned. If too much was withheld, it comes back. Nothing about a bonus is taxed more heavily than salary.

Where the $1,482 went

On a $5,000 bonus, using the flat method:

Social Security and Medicare are not prepayments — those are owed on bonus income exactly as on salary, and you don't get them back. Only the federal income tax portion is a withholding estimate that trues up at filing.

The two methods, and why one feels much worse

Employers have a choice, set out in IRS Publication 15, section 7:

The percentage method treats the bonus as a separate payment and withholds a flat 22%. Most employers use it, because it's one number and one payroll run. For 2026 that rate is unchanged — the One Big Beautiful Bill Act made the underlying individual rates permanent, so the supplemental rate stayed at 22%.

The aggregate method lumps the bonus into a regular paycheck and runs the whole amount through the normal withholding tables. Those tables assume the inflated paycheck is what you earn every period, so they withhold as if you were on a far higher salary. This is where the horror stories come from — a bonus paid this way can look like it lost 35% or more. It's also entirely temporary: the over-withholding comes back at filing.

If your bonus seemed to vanish, check whether it arrived as a separate payment or inside a regular check. That single detail usually explains the number.

Who gets money back, and who owes

This is the part most explanations skip. Whether 22% is too much or too little depends on your bracket — and for a lot of people, it is genuinely too much.

Here is what a $5,000 bonus actually costs at different salaries, for a single filer in a state with no income tax:

If you earn under about $61,500 as a single filer, the flat 22% over-withholds and you are effectively lending the government money until you file. In the 22% bracket it lands almost exactly right. Above that, it slightly under-withholds — and at much higher incomes, where the marginal rate reaches 32% or 35%, the shortfall becomes large enough to plan for.

FICA doesn't work the way you'd guess

Two wrinkles that catch people out:

Social Security stops. In 2026 it applies to the first $184,500 of wages. If your salary plus bonus crosses that line, the portion above it pays no Social Security tax at all — a bonus paid late in the year to a high earner is taxed noticeably more lightly than the same bonus paid in January.

Medicare doesn't stop, and it gets worse. 1.45% applies to every dollar with no cap, and an additional 0.9% kicks in above $200,000 for single filers ($250,000 married filing jointly). A bonus that pushes you across that threshold picks up the surtax on the portion above it.

Bonuses over $1 million

If your cumulative supplemental wages for the year exceed $1 million, the excess is withheld at a mandatory 37% — no employer discretion. Rare, but if it applies to you the flat-22% intuition is simply wrong.

State tax varies more than federal

Federal treatment is uniform. State treatment is not.

In the nine states with no income tax — Texas, Florida, Nevada, Washington, Tennessee, South Dakota, Wyoming, Alaska, and New Hampshire — nothing is withheld at the state level, so the numbers above are your whole picture.

Flat-rate states generally apply their normal rate. Several progressive states set a specific supplemental rate that can differ noticeably from what you actually owe, which produces the same over- or under-withholding effect at the state level.

What actually reduces the tax

Withholding tricks don't lower your bill; they only shift when you pay it. Three things genuinely change the number:

Route it into a 401(k). Many employers let you set a separate deferral percentage for bonuses. Every dollar deferred avoids federal income tax at your marginal rate this year.

Or an HSA, if you have a qualifying high-deductible plan — pre-tax going in, untaxed coming out for medical costs.

Timing, occasionally. If you're near the Social Security wage base, or expect a materially different income year, when the bonus lands can matter. This is worth a conversation with a tax professional rather than a rule of thumb.

The short version

Your bonus was not taxed at 40%. It was withheld at a flat rate that ignores your actual bracket, and the difference resolves when you file. For most single filers earning under about $61,500, that difference is money coming back.

To see the exact figures for your salary and state, use the bonus tax calculator — it runs entirely in your browser, and nothing you enter is transmitted or stored.

Figures in this article are computed with the same engine that powers the calculators on this site, for a single filer using the standard deduction in a state with no income tax. Federal rates and the standard deduction come from IRS Revenue Procedure 2025-32; FICA rates and the $184,500 wage base from the Social Security Administration's 2026 fact sheet; supplemental withholding rules from IRS Publication 15, section 7. Full citations on our sources page.

Your own paycheck will differ if you have local income taxes, benefit deductions, or non-standard Form W-4 entries. This is a planning estimate, not tax advice.