There’s no better feeling than hearing you’ve earned a performance bonus. But that excitement often turns to confusion when the actual check arrives. If you were expecting a $5,000 bonus and only saw $3,200 hit your bank account, you aren’t alone.
The most common question American workers ask is: “Why is my bonus taxed so much higher than my regular salary?”
The short answer is: It isn’t necessarily taxed at a higher rate, but it is often withheld differently.1 In this guide, we’ll explain how the IRS classifies bonuses as “supplemental wages” and how the two main withholding methods affect your take-home pay in 2025 and 2026.
1. The IRS Label: “Supplemental Wages”2
The IRS does not see your bonus as part of your regular salary.3 Instead, it classifies it as supplemental wages.4 This category also includes commissions, overtime pay (though some 2025 laws provide relief here), severance pay, and prizes.5
Because these payments are irregular, the IRS requires employers to use specific withholding rules to ensure enough tax is collected upfront.6
2. Two Methods of Bonus Withholding
Your employer generally chooses one of two ways to calculate the tax on your bonus.7 Knowing which one they use will explain that “missing” money on your pay stub.
Method A: The Percentage Method (Flat 22% Rate)
This is the most common method for separating bonus checks.8 If your bonus is paid separately from your regular paycheck, the IRS allows a flat federal withholding rate.9
- The Rate: 22% for bonuses up to $1 million.10
- Over $1 Million: If you’re lucky enough to get a bonus over $1 million, the portion above that million is withheld at the highest tax rate—37%.11
Why it feels high: If your regular effective tax rate is 12% or 15%, seeing 22% taken out immediately feels like a huge bite.
Method B: The Aggregate Method
If your employer adds your bonus to your regular paycheck, they must use the aggregate method.12 This is where the real “sticker shock” happens.
- How it works: The payroll software treats your total check (Salary + Bonus) as if that is what you earn every single pay period.
- The Result: It temporarily pushes you into a much higher tax bracket.13 For that one pay period, the IRS might withhold taxes as if you earn $300,000 a year, even if you only earn $70,000.
3. Don’t Forget FICA and State Taxes
The 22% federal withholding is just the beginning. Your bonus is also subject to:
- Social Security (6.2%):14 Up to the 2026 wage base of $184,500.
- Medicare (1.45%):15 Applied to the entire bonus.16
- State Taxes: Depending on where you live.17 For example, California has a supplemental withholding rate of 10.23%.18
The Math: Between Federal (22%), FICA (7.65%), and State Tax (e.g., 6%), it is very common to see nearly 35% to 40% of your bonus disappear before it reaches you.
4. Is That Money Gone Forever?
Here is the good news: Withholding is not the same as the final tax you owe.19
When you file your tax return in April 2026, the IRS will look at your total annual income (salary + bonus). If your employer withheld 22% on your bonus but your actual tax bracket for the year is only 15%, you will get that extra 7% back as part of your tax refund.
5. How to Keep More of Your Bonus
If you want to minimize the immediate “hit” to your bonus check, consider these strategies:
- Increase 401(k) Contributions: Ask your HR to direct a larger percentage of your bonus into your 401(k). This money goes in “pre-tax,” meaning the IRS won’t take its cut immediately.
- HSA Contributions: Similar to a 401(k), putting bonus money into a Health Savings Account reduces your taxable income.20
- The Separate Check Request: If your employer uses the aggregate method, ask if they can issue the bonus as a separate check.21 This usually triggers the flat 22% rate, which might be lower than the aggregate withholding.
Conclusion
Your bonus check may appear small because the government wants to ensure it receives its share upfront. While it’s frustrating to see a large chunk missing, remember that any over-withholding will likely come back to you during tax season.
To see exactly how a bonus will impact your specific take-home pay in your state, use our U.S. States Salary Calculator and try adding a “Supplemental Income” entry to your calculation.