Why is my bonus taxed at 40%?

It's not. What looks like 40% is actually 22% federal withholding + 7.65% FICA + state tax (varies by state). Combined, these can take 35-45% of your gross bonus, but it's not all federal tax. The 22% is just withholding — any excess is refunded when you file.

Are bonuses taxed higher than regular pay?

No. Bonuses are taxed as ordinary income at your marginal tax rate. The 22% supplemental withholding is just a payroll shortcut, not a higher tax rate. If your actual rate is lower, you get the difference back as a refund. If it's higher, you may owe more.

How can I reduce taxes on my bonus?

You can't avoid tax on a bonus, but you can reduce taxable income by maxing out pre-tax accounts (401(k), HSA, traditional IRA) in the same tax year. You can also time your bonus to a year when your income is lower. The withholding rate itself (22%) is set by your employer and can't be changed.

Why Is My Bonus Taxed So Much? 2026 Explanation

You just got a $5,000 bonus — but your check is only $3,200. Where did the other $1,800 go? Your bonus wasn't taxed at a higher rate than regular pay. What you're seeing is withholding, and here's why it looks so big.

The 22% Supplemental Withholding Rule

What is supplemental withholding?

The IRS treats bonuses as "supplemental wages," separate from your regular salary. Employers can choose to withhold federal tax at a flat 22% rate on bonuses under $1 million. This is simpler for payroll systems than calculating your actual marginal tax rate.

22% federal withholding is not your actual tax rate — it's just a convenient default.
If you're in the 12% or 10% bracket, you're over-withheld and will get a refund when you file.
If you're in the 32% or 35% bracket, 22% might be under-withheld, and you may owe more at tax time.

Why does my bonus check look so small?

In addition to the 22% federal withholding, your bonus is also subject to:

FICA (7.65%): Social Security (6.2%) + Medicare (1.45%) — same as regular wages.
State income tax: Varies by state; some states withhold at your regular rate, others use a flat rate.
Local taxes: If applicable in your city or county.

Example: $5,000 bonus breakdown

Here's where a $5,000 bonus goes:

Federal withholding (22%): -$1,100
Social Security (6.2%): -$310
Medicare (1.45%): -$72.50
State tax (5% example): -$250
Net bonus: $3,267.50 (about 65% of gross)

Will I Get the Excess Back?

Yes, if you were over-withheld. When you file your taxes, the IRS calculates your actual tax liability based on your total income for the year (salary + bonus combined). If 22% was more than your real marginal rate, the excess is refunded.

Who gets a refund?

If you're in the 10% or 12% federal bracket, you'll get back the difference between 22% and your actual rate. For example, if your real rate is 12%, you'll get a 10% refund on the withheld amount.

Who might owe more?

If you're in the 32%, 35%, or 37% bracket, 22% withholding isn't enough. You may owe additional tax when you file — plan ahead by setting aside some of your bonus or adjusting your W-4.

Can I Change How My Bonus Is Taxed?

You can't change the withholding rate your employer uses, but you can:

Adjust your W-4 to increase regular paycheck withholding if you know your bonus will push you into a higher bracket and 22% isn't enough.
Set aside extra from your bonus if you're in a high bracket and expect to owe at tax time.
Use the IRS Tax Withholding Estimator to see if you're on track or need to adjust.
Max out pre-tax accounts like 401(k) or HSA to reduce taxable income for the year.

Key Takeaways

Bonuses are taxed as ordinary income — the same rate as your salary.
The 22% federal withholding is just a convenient default, not a special "bonus tax."
FICA (7.65%) and state tax also come out, making your net bonus 60–70% of gross.
If you're over-withheld, you get the excess back as a refund when you file taxes.
If you're in a high bracket, 22% might not be enough — plan to set aside more or adjust your W-4.

Why Is My Bonus Taxed So Much?