Bonus Tax Rate 2026: The IRS 22% Supplemental Wage Rule
The IRS treats bonus pay as supplemental wages, taxed federally at a flat 22% withholding rate in 2026 (37% on amounts over $1 million per year per employee). This page covers the exact rate, the alternative aggregate method, how state and FICA stack on top, and why your actual tax may differ from withholding.
The 22% Federal Supplemental Wage Rate (2026)
Under IRS Publication 15 and Treasury Regulation 31.3402(g)-1, employers may use either of two methods to withhold federal tax from bonuses, commissions, severance, and other supplemental wages:
- Flat 22% method: Withhold 22% of the bonus, period. This is the simpler and more common approach. For bonuses over $1 million per year per employee, the rate jumps to 37% on the excess.
- Aggregate method: Add the bonus to your most recent regular paycheck, calculate withholding on the combined amount using normal W-4 settings, subtract what was already withheld on the regular paycheck. The remainder is withheld from the bonus.
For most employees, the flat 22% method results in over-withholding compared to actual tax liability. Bonuses don't have higher tax rates than regular wages, they just have a higher withholding rate. The difference comes back as part of your tax refund.
Example: $5,000 Bonus With All Taxes
Take a $5,000 bonus paid to a single filer in California:
- Federal withholding (22% flat): $5,000 × 0.22 = $1,100
- Social Security (6.2%): $5,000 × 0.062 = $310 (unless already over $184,500 wage cap)
- Medicare (1.45%): $5,000 × 0.0145 = $72.50
- California state withholding (10.23% supplemental): $5,000 × 0.1023 = $511.50
Total withheld: $1,994. Net bonus: $3,006.
That's a 40% effective withholding rate on a bonus, even for someone in the 12% or 22% normal bracket. The over-withholding shows up as a larger refund in April. If you want more of the bonus now, ask payroll to use the aggregate method instead.
State Bonus Tax Rates 2026
| State | Supplemental Rate |
|---|---|
| California | 10.23% (6.6% for non-bonus supplemental) |
| New York | 11.70% |
| Massachusetts | 5.00% flat |
| New Jersey | N/A, uses aggregate method |
| Pennsylvania | 3.07% flat |
| Illinois | 4.95% flat |
| Ohio | 3.50% |
| North Carolina | 4.50% |
| Georgia | 5.39% |
| No-tax states (TX, FL, WA, etc.) | 0% |
Why Your Bonus Withholding Doesn't Equal Your Tax
Withholding ≠ tax owed. Your actual federal tax on a bonus depends on your total annual income and bracket. If you're in the 12% bracket overall, withholding 22% on a bonus over-collects 10 percentage points, that comes back at filing.
For people in the 24% or higher bracket, the flat 22% bonus rate UNDER-withholds. A high earner getting a $30,000 bonus has 22% withheld ($6,600) but owes 24% or 32% federal ($7,200-$9,600) on that income. The shortfall becomes an additional tax bill in April.
Two scenarios to fix this:
- Low/middle income worker who wants more cash now from bonus: ask payroll to use the aggregate method. You'll likely get more take-home immediately.
- High earner expecting bonuses: increase Step 4(c) extra withholding on regular paychecks during the year to cover the under-withholding gap.
Bonus Tax Strategies That Actually Work
Strategy 1: Contribute the bonus to 401(k). Many employers allow you to direct your annual bonus directly into your 401(k) (up to the $24,500 / $31,000 limit). $5,000 bonus to traditional 401(k) saves the 22% federal withholding immediately, $1,100 back in your check, $5,000 invested pre-tax.
Strategy 2: Time the bonus into a lower-income year. If you know your income will drop next year (sabbatical, parental leave, retirement) and you have any control over bonus timing, deferring saves real tax money.
Strategy 3: Use HSA for additional pre-tax shelter. If you have a high-deductible health plan, max your HSA ($4,400 single / $8,750 family in 2026) before bonus arrives. HSA contributions reduce federal AND state taxable income AND FICA.