How Bonus Tax Withholding Works
Bonuses, commissions, severance, and other one-off payments are classified by the IRS as "supplemental wages." Employers can withhold federal tax on these payments using one of two methods. The most common is the flat rate method: a straight 22% federal withholding on the bonus, jumping to 37% on any portion that exceeds $1 million in a calendar year.
The alternative is the aggregate method, in which the employer adds the bonus to your most recent regular paycheck and calculates withholding as if the combined amount were your normal pay. This typically produces withholding at your marginal bracket — which can be lower than 22% for some workers and much higher for high earners.
Beyond federal income tax, your bonus is also subject to Social Security (6.2% up to the $168,600 wage base), Medicare (1.45%, plus a 0.9% surcharge on wages above $200,000), and any applicable state income tax. Remember that withholding is an estimate — your actual tax bill is reconciled when you file your annual return, so an over-withheld bonus often comes back as part of your refund.