No, signing bonuses are not taxed at 50%. They are considered "supplemental wages" by the IRS and are generally subject to a flat 22% federal withholding rate for amounts up to $1 million. If your total annual bonus exceeds $1 million, the amount over $1 million is withheld at 37%.
When you add a bonus to the equation, that bonus is supplementary and wasnt factored into the calculation that was done above for your normal paychecks. As a result, the tax liability for that bonus income will fall in your top tax bracket. so bonuses are withheld at a higher rate.
The percentage method
The withholding rate for supplemental wages is 22 percent. That rate will be applied to any supplemental wages, such as bonuses, up to $1 million during the tax year. If your bonus totals more than $1 million, the withholding rate for any amount of the bonus above $1 million is 37 percent.
The Importance of Residency and Contract Language
The key here is the residency of the athlete. For example, an athlete with residency in Florida—a state with no income tax—who signs with a team in a high-tax state like California, can avoid California state taxes on their signing bonus with the correct contract terms.
Bonus contributed pre-tax to super
For example, tax on a $50,000 bonus: Paid to you and your marginal tax rate is 32.5% = $16,250. Paid to you and your marginal tax rate is 37% = $18,500.
You can't entirely avoid taxes on a bonus, but you can significantly lower the amount by contributing to tax-advantaged accounts (401(k), IRA, HSA), deferring the bonus to a year you expect to be in a lower tax bracket, or making charitable donations, thereby reducing your taxable income or increasing deductions at tax time.
Before you start making plans to spend it, it's important to understand how that income will get taxed. Yes, your bonus money is taxable—typically 22% is withheld for taxes—and it's up to you to make sure the appropriate amount gets paid.
One of the most notable differences between bonuses and raises is the duration of the compensation. Bonuses are one-time, short-term financial rewards. A raise is an increase to your current salary for the foreseeable future and provides more long-term benefits.
This is because they are considered supplemental income. In general, most everything that falls under “supplemental income” is subject to different requirements, including how it is dispersed, reported, and how taxes are withheld.
Average sign-on bonuses vary significantly but often range from 5% to 20% of the base salary, with larger bonuses for high-demand roles like tech (AI/ML) or healthcare (physicians) and smaller amounts for entry-level or hourly roles, often paid upfront or tied to a work commitment. While a $1,000 median was seen for hourly workers and $7,500 for salaried roles in 2021, specialized medical roles can see tens of thousands, like $30k-$40k+ for family medicine or OB-GYN, making industry and role critical factors.
Typically a team will withhold state tax of the team state where the player is assigned. If their bonus is deemed a “signing” bonus it will not be apportioned as wages and will be taxed in their resident state.
Tax withholding on bonuses
For federal taxes, when an employee receives $1 million or less in supplemental wages during 2025 and those wages are identified separately from regular wages, the flat withholding rate is 22 percent.
The tax rate that you will pay on your bonus will depend on the income bracket that you fall into in the 2024/2025 tax year: Basic rate: for earners making between £12,571 to £50,270, your bonus will be taxed at 20%. Higher rate: for those making between £50,271 to £150,000, your bonus is taxed at 40%.
Key takeaways
Employers generally withhold taxes on bonuses at a 22% rate, with anything over $1 million withheld at 37%. This is called the percentage method. Alternatively, employers can combine the bonus with your regular pay and withhold tax on the entire sum. This is called the aggregate method.
The general rule is that employees are taxed at the rate of the marginal tax bracket in which they fall. Let's explain: if their salary is between R 1 and R 216 200, they are in the 18% tax bracket and therefore their bonus will be taxed at 18%.
Impact of a bonus taking your earnings over 100k
Let's say you earn a £100k salary and – good news – you've been awarded a £1,000 bonus. Ready for the bad news? Not only will this bonus be taxed at 40% (leaving you with £600), but you also lose £500 from your tax-free personal allowance.
Percentage Method (Most Common) – The IRS requires a flat withholding rate of 22% for bonuses under $1 million (as of 2025). This means your employer will typically withhold 22% of your bonus for federal income taxes—regardless of your actual tax bracket.
Things to know about the tax impact of bonuses. By now, you may be wondering, “Why are bonuses taxed so high?” It's because the IRS considers bonus pay to be supplemental income. Therefore, the IRS treats it differently than standard income.
The higher-rate tax band begins at £50,271, so at £50,000, you're still within the basic 20% tax rate. If you receive a bonus or take on extra income and your total earnings go above that threshold, only the amount over £50,270 is taxed at 40%.