Bonus Tax Calculator

The IRS classifies bonuses as supplemental wages, and most employers withhold federal income tax at a flat 22% rate on bonus payments up to $1 million. For bonus amounts exceeding $1 million, the withholding rate jumps to 37%. This flat rate method is simpler for employers and is separate from your regular paycheck withholding. Keep in mind that this is just the withholding rate, not your actual tax rate; your true tax liability is determined when you file your annual return.

Employers can choose between two withholding methods for bonuses. The percentage method applies the flat 22% rate to the bonus amount separately from your regular wages. The aggregate method combines your bonus with your most recent regular paycheck and withholds based on the combined amount as if it were a single larger paycheck. The aggregate method often results in higher withholding because it temporarily places you in a higher bracket, though you may receive the excess back as a refund when filing.

Bonuses are subject to Social Security tax (6.2%) and Medicare tax (1.45%) just like regular wages. Social Security tax applies until your total wages and bonuses for the year reach the annual wage base limit of $168,600 in 2024. Once you exceed this threshold, no additional Social Security tax is withheld, but Medicare tax continues with no cap. High earners above $200,000 also pay an additional 0.9% Medicare surtax on earnings beyond that threshold.

One of the most effective ways to reduce the tax impact of a bonus is to contribute it directly to a pre-tax retirement account like a 401(k). If your plan allows, you can increase your contribution percentage for the pay period in which you receive the bonus, sheltering a significant portion from immediate taxation. Other strategies include timing deductible expenses like charitable contributions to offset bonus income, or deferring the bonus to a year when you expect lower overall income.