How Much of Your Bonus Do You Keep?

How Are Bonuses Taxed in 2026?

Bonuses are classified as supplemental wages by the IRS — a category that includes overtime pay, commissions, and severance. Your employer can choose between two withholding methods:

• Flat 22% method (most common): Your employer withholds 22% of the bonus amount (37% if your bonus exceeds $1 million). Quick and simple, but may not match your actual tax liability.
• Aggregate method: Your employer calculates total annual tax on (salary + bonus), then subtracts what was already withheld from regular paychecks. The difference is withheld from the bonus — more precise, but more complex.

The key point: bonuses aren't taxed differently than regular income at tax time. The flat 22% withholding is just an upfront estimate. When you file your 1040, the IRS recalculates everything using the progressive bracket system. If you overpaid, you get a refund. If you underpaid, you owe the difference.

Flat Rate vs. Aggregate Method: When It Matters

Most employees see no difference at tax time, because both methods result in the same final tax liability. The difference is in how much comes out of the bonus check:

• Flat 22%: Simple and predictable. Withholds 22% upfront. May overwithold if you're in a lower bracket, or underwithold if you're in a higher one.
• Aggregate: More accurate. Treats bonus + salary as a single annual income and calculates the correct marginal rate. You may get a larger bonus check — or a slightly smaller one — depending on your bracket.

Example: You earn $75,000/year and receive a $10,000 bonus. Flat 22% withholds $2,200. The aggregate method calculates tax on $85,000 total, subtracts salary withholding already paid, and withholds the remainder — usually within a few dollars of the flat method for most earners.

How to Reduce Tax on Your Bonus

• Contribute to your 401(k): If you have remaining 401(k) contribution room, direct part of the bonus there. These contributions reduce both federal and FICA taxes dollar-for-dollar.
• Charitable donations: If you itemize, donating the bonus reduces your taxable income. Note that withholding already happened — you'd claim the deduction when you file.
• Timing: Deferring the bonus to the next calendar year could lower your current-year bracket or help you hit your 401(k) annual limit.
• HSA contributions: With a high-deductible health plan, HSA contributions are triple-tax advantaged — deductible going in, tax-free on growth, and tax-free for medical expenses.