Your Bonus Check Is Taxed Differently Than You Think

You got a $10,000 bonus. You expected roughly $10,000 extra. The check that showed up was closer to $7,800.

You weren't shortchanged. The IRS taxes bonuses differently than regular salary — and almost nobody explains this before the check arrives.

Here is exactly how it works in 2026. BONUSES ARE "SUPPLEMENTAL WAGES" — NOT REGULAR PAY

The IRS classifies bonuses, commissions, severance pay, and even unused vacation payouts as supplemental wages. These are taxed using a completely different withholding method than your normal paycheck.

For any supplemental wage payment up to $1 million, employers are permitted to withhold federal tax at a flat 22% rate — regardless of your actual tax bracket. If your bonus somehow exceeds $1 million in a single year, the amount above that threshold is withheld at 37%.

WHY THIS SURPRISES SO MANY PEOPLE

If your regular marginal tax bracket is 24% or higher, that flat 22% withholding is actually too low — meaning you'll owe the difference when you file your return in April.

If your marginal bracket is lower than 22% — common for many workers earning under $100,525 as a single filer — your bonus is being over-withheld. You are letting the IRS hold onto extra money interest-free until you file and claim it back as part of your refund.

THE SECOND METHOD YOUR EMPLOYER MIGHT USE

Some employers use the aggregate method instead. They add your bonus directly to your next regular paycheck and withhold tax on the combined total as if that were your normal pay for the period. Because the combined amount looks much larger for that one pay period, the withholding tables can pull an even higher percentage than 22% — even though your annual tax liability hasn't actually changed. It evens out when you file, but the paycheck itself can look painfully small.

STATE TAXES STACK ON TOP

On top of the federal 22%, most states apply their own supplemental withholding rate. California withholds an additional 10.23% on bonuses. New York withholds 11.70% — and New York City residents can face a combined state and local rate of over 15.5%. States with no income tax — Texas, Florida, Nevada, Washington, Wyoming, South Dakota, Alaska — don't touch your bonus at all beyond the federal rate.

WHAT YOU CAN ACTUALLY DO ABOUT IT

Withholding is not your final tax bill — it's a prepayment. If your bonus was over-withheld, you get the difference back at filing. If it was under-withheld, you can reduce the surprise by increasing your 401k contribution in the same pay period (pre-tax contributions lower your taxable income immediately) or by adjusting your W-4 for the rest of the year to balance it out.