Why are bonuses taxed higher?
Understanding why bonuses appear to be taxed at a higher rate and what you can do about it.
- •Bonuses aren't taxed at a higher rate—they use the same brackets as regular pay
- •The confusion comes from withholding methods, not actual tax rates
- •You'll get any over-withholding back as a refund when you file
- •The flat rate method (22%) is simpler but can over-withhold for lower earners
Updated Jan 2026
The bonus tax misconception
If you've received a bonus and noticed it seems to be taxed at a much higher rate than your regular pay, you're not imagining things. But here's the important part: bonuses aren't actually taxed at a higher rate—they're subject to the same income tax brackets as your regular wages.
The confusion comes from how employers withhold taxes on bonuses, not from how bonuses are actually taxed when you file your return.
Key takeaways:
- Bonuses aren't taxed at a higher rate—they use the same brackets as regular pay
- The confusion comes from withholding methods, not actual tax rates
- You'll get any over-withholding back as a refund when you file
How bonus withholding works
When you receive a bonus, your employer uses one of two methods to calculate withholding:
Key Point
The withholding on your bonus is just an estimate. When you file your tax return, bonuses are taxed at your actual marginal rate based on your total annual income. If too much was withheld, you'll receive a refund.
Flat rate method: Withholds at a flat 22% for federal income tax (or 37% for bonuses over $1 million). This is simple but can over-withhold for lower earners and under-withhold for higher earners.
Aggregate method: Adds the bonus to your regular paycheck and calculates withholding as if you earn that amount every pay period. This often results in higher withholding because it assumes you're in a higher tax bracket.
For example, you earn $80,000 annually and receive a $5,000 bonus. With the aggregate method, your employer calculates withholding as if you earn $85,000 every pay period, which puts you in a higher bracket. This results in more withholding than if the bonus were taxed at your actual rate.
Key takeaways:
- Two withholding methods: flat rate (22%) or aggregate method
- Aggregate method can make bonuses appear more heavily taxed
- Withholding is just an estimate—actual tax is calculated when you file
How bonuses are actually taxed
When you file your tax return, bonuses are treated as ordinary income and taxed at your actual marginal tax rate based on your total annual income. There's no special 'bonus tax rate'—bonuses are just added to your regular wages.
For example, you're in the 22% federal tax bracket. Your $5,000 bonus is taxed at 22%, not at a higher rate. If your employer withheld 22% using the flat rate method, your withholding matches your actual tax, and you won't owe or receive a refund on the bonus.
However, if your employer used the aggregate method and withheld more than 22%, you'll receive the difference as a refund when you file. If they withheld less, you'll owe the difference.
Bonuses are also subject to Social Security tax (6.2% up to the wage base) and Medicare tax (1.45%, plus 0.9% for high earners), just like your regular pay.
Key takeaways:
- Bonuses are taxed as ordinary income at your marginal rate
- No special 'bonus tax'—it's the same as your regular income tax
- You'll get any over-withholding back as a refund
State tax on bonuses
State income tax on bonuses works the same way as federal tax—bonuses are treated as ordinary income and taxed at your state's regular income tax rates.
Your employer may use similar withholding methods for state tax as they do for federal tax. If you're in a high-tax state like California or New York, state tax on bonuses can be significant.
For example, if you're in California and receive a $10,000 bonus, you might pay approximately $1,000-$1,300 in California state tax (depending on your income level), in addition to federal tax.
Key takeaways:
- State tax on bonuses works the same as federal—ordinary income rates
- High-tax states can significantly impact bonus take-home pay
- Withholding methods may vary by state
Want to see this with your numbers? Try the calculator with your numbers →
What to do next
Next steps to address this paycheck question or situation.
If you've received a bonus and it seems heavily taxed, here's what to know:
- This is normal: Higher withholding on bonuses is expected and doesn't mean you're being taxed unfairly. The withholding is just an estimate.
- You'll get it back: If too much was withheld, you'll receive it as a refund when you file your tax return. However, this means you're giving the government an interest-free loan.
- Plan your cash flow: Don't assume you'll receive the full bonus amount in your paycheck. Plan for the withholding, especially if you have large expenses coming up.
- Consider adjusting regular withholding: If you consistently receive large refunds, consider adjusting your regular W-4 withholding to get more money in each paycheck throughout the year.
- Use our calculator: See how bonuses affect your take-home pay with our bonus calculator to estimate your actual take-home amount.
Remember
Bonuses are taxed the same as regular income—the higher withholding is just an estimate. You'll get any over-withholding back as a refund, but you might prefer to adjust your regular withholding to get that money throughout the year instead.