Bonuses are considered "supplemental wages" by the IRS, usually taxed at a flat federal rate of 22% for amounts up to $1 million. If the bonus exceeds $1 million, the amount above $1 million is taxed at 37%. In addition to the 22% federal withholding, you will pay 7.65% for FICA (Social Security and Medicare) and applicable state/local taxes.
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.
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.
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%.
Why is tax withholding on bonuses so high? Since bonuses are paid in addition to your normal paycheck, taxes are withheld at a higher rate than your regular wages. This is because they are considered supplemental income.
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.
Keep in mind that a bonus may push you into a higher tax bracket. But, you are subject to a higher rate only on the portion of income that falls into that bracket.
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.
The IRS allows two primary methods for taxing bonuses. The percentage method uses a flat 22% federal tax rate. This method is straightforward but could result in over-withholding for some individuals. The aggregate method combines your bonus with your regular earnings and then calculates taxes based on the total.
Bonuses under $1 million are typically taxed at a flat rate of 22%. Example: If you receive a bonus of $20,000, the flat federal tax rate of 22% would amount to $4,400. If you receive a bonus above $1 million, you'd pay the 22% rate on the first million. Beyond that, the rate jumps to 37%.
Ultimately, the employer is responsible for withholding the correct amount of taxes from a bonus check. Although you can't avoid paying taxes on a bonus payment altogether, there are options to reduce your tax bill.
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.
They're withheld at a higher rate because we have a progressive tax system and your paycheck withholdings don't account for a bonus. So the higher withholdings rate on bonuses tend to be more accurate than using the effective rate on your paycheck.
The amount of tax you pay depends on your total income, including the bonus. For example, if you're in the standard tax band of 20%, your €5,000 bonus would be taxed at 20%, meaning you'd pay €1,000 in tax. Universal social charge: On top of Income Tax, your bonus is also subject to the Universal Social Charge (USC).
The amount of income tax due depends on which income tax bracket the employee falls into, but it also needs to be borne in mind that bonus payments can push an employee's total annual income into a higher tax bracket.
It's possible that a bonus or a pay increase can put you in a higher tax bracket. That means you will pay a higher tax rate on each additional dollar you earn. Some people think they may actually have less after-tax income because of a bonus, but this is not true.