How Much Are Bonuses Taxed?
Quick Answer: Bonuses are taxed using a 22% federal flat rate for income tax withholding, plus the same Social Security and Medicare taxes that apply to regular wages. This withholding doesn’t reflect an employee’s true tax rate — it’s simply a prepayment that gets reconciled when they file their return.
Understanding how bonus withholding works makes it easier to explain paycheck differences, avoid confusion, and run compliant bonus payroll during busy seasons.
How Does the IRS Tax Bonuses?
The IRS calls bonuses "supplemental wages", basically any extra pay beyond regular paychecks. This includes performance bonuses, holiday bonuses, commissions, and overtime pay.
You've got two ways to handle the tax withholding on bonuses: the percentage method (22% flat rate for bonuses up to $1 million) or the aggregate method (combining the bonus with regular wages and calculating withholding based on the team member's W-4).
The Percentage Method (22% Flat Rate): This is the simplest approach for most small businesses. You withhold 22% from bonuses under $1 million, regardless of the team member's regular tax bracket or W-4 settings.
The Aggregate Method: This combines the bonus with regular wages for the pay period and uses the team member's W-4 to calculate withholding. This method might be more precise, but it's a headache with all the math involved—most restaurant and retail managers stick with the simpler percentage method.
Both methods also require the same FICA taxes as regular wages: 6.2% for Social Security and 1.45% for Medicare.
Why Does Bonus Withholding Look Different From Regular Pay?
The biggest point of confusion is that withholding doesn’t reflect someone’s real tax rate. That 22% bonus rate is simply an IRS payroll shortcut, not an extra tax. Here’s how it works:
The 22% is only a withholding rule: At tax time, regular wages and bonuses get combined and taxed using the normal IRS brackets (10%, 12%, 22%, etc.).
Most hourly employees are in the 12% bracket: So when servers or cashiers earning $35,000–$45,000 see 22% withheld, it’s more than they truly owe—meaning refunds later.
Manager earnings vary: Some match the 22% bracket, while higher-earning staff might owe additional tax at filing.
Withholding affects their paycheck today, but the IRS sorts out what they actually owe when they file their return.
What Does This Mean for Payroll Processes?
Here's what you need to do: withhold and deposit all payroll taxes from bonuses—federal income tax, Social Security, Medicare, FUTA, and any applicable state taxes.
Key deadlines to remember: Monthly depositors must submit taxes by the 15th of the following month. Semi-weekly depositors follow the standard schedule—Wednesday for bonuses paid on Wednesday through Friday, and Friday for bonuses paid Saturday through Tuesday. And if your total taxes ever reach $100,000 or more in a single day, the IRS next-day deposit rule kicks in, requiring payment by the following business day.
State requirements vary significantly. For example, Texas and Florida have no state income tax, while California uses graduated rates and New York offers an 11.70% flat rate option for bonuses.
All bonus payments get reported on Form W-2, combined with regular wages in Box 1.
How Does Homebase Help with Bonus Payroll?
Homebase takes the guesswork out of bonus payroll by applying the correct federal, state, and local withholding rates automatically. You can add bonuses to a regular run or process them separately with the 22% flat rate.
It also updates overtime calculations when bonuses change the regular rate and handles electronic tax deposits and quarterly filings. The result is fewer manual steps, fewer errors, and a smoother, compliant payroll process.
Get Homebase free for six months.
Sources and Methodology
At Homebase, we rely on up-to-date, authoritative sources to ensure every Question Center article reflects accurate guidance for small business owners. We begin with primary IRS and Department of Labor guidance, verify details using federal and state tax publications, and use reputable payroll resources only to supplement—not override—official regulations.
For this piece, we referenced IRS Publications 15 and 15-A, DOL guidance on bonus requirements, state tax agency resources for California, Texas, Florida, and New York, IRS Topic 759, and Homebase’s internal payroll and tax compliance content.