Supplemental Wage Withholding: Why a Bonus Is Taxed at a Flat 22%

A $5,000 bonus that shows up as $3,900 in your account is not a mistake and it is not a higher tax bracket punishing you. It is supplemental wage withholding, a separate set of IRS rules for pay that is not part of your regular salary. Understanding how these rules work explains why bonuses, commissions, and overtime sometimes appear to be taxed more heavily than a normal paycheck — and why the difference often comes back to you at tax time.

The Two Ways Employers Withhold on Supplemental Pay

The IRS treats supplemental wages — bonuses, commissions, severance, prizes, and retroactive pay — differently from regular wages. An employer must use one of two methods.

Method	How it works	Best used when
Percentage method	Withhold a flat 22% federal rate on the supplemental amount	Employee received $1M or less in supplemental wages this year
Aggregate method	Add the bonus to the regular paycheck, then withhold as if that total were the normal wage	Employer wants a more personalized rate, or the 22% cap does not apply

If the employer has already withheld income tax on the employee’s regular wages during the year, the law lets them use the simpler 22% percentage method for the bonus. That flat rate is why the bonus looks overtaxed.

Why 22 Percent Feels Like Too Much

If your normal paycheck is withheld at, say, 12%, a bonus withheld at a flat 22% will feel like a penalty. But withholding is not the same as tax owed. The 22% is a prepayment estimate, not a final bill. When you file your return, all your income — regular and supplemental — is totaled and taxed at your actual marginal rate. If your true rate on the bonus turns out to be lower than 22%, the difference comes back as a larger refund. If it is higher, you owed the extra anyway.

The $1 Million Threshold

There is a hard rule once supplemental wages cross $1,000,000 for the year. Any supplemental pay above that figure must be withheld at the highest federal rate, currently 37%, with no 22% cap. For the vast majority of workers this never applies, but it catches executives with large deferred bonuses or big one-time payouts.

A Concrete Example

Suppose your salary is $72,000 and you receive a $5,000 annual bonus. Withheld at the flat 22%, federal tax on the bonus is $1,100, so you see $3,900 before Social Security, Medicare, and state tax. Your actual marginal federal rate as a single filer in the 22% bracket is 22%, so the withholding matched the true liability almost exactly. No surprise, no windfall. Now suppose your salary is $38,000, putting you in the 12% marginal bracket. The same $5,000 bonus is withheld at 22% ($1,100) but your real rate is 12% ($600). The extra $500 is refunded when you file.

Social Security and Medicare Still Apply

Supplemental wages are subject to FICA taxes just like regular pay: 6.2% for Social Security up to the annual wage limit, and 1.45% for Medicare with no cap. This is separate from the 22% income tax withholding and does not come back at tax time — it is the same payroll tax you pay all year.

Turning a Gross Bonus Into a Net Number

Because a bonus can be split into flat 22% federal withholding, FICA, and state tax, the take-home figure is rarely what people expect. To see how an hourly or annual figure converts to actual pay, the hourly-to-salary calculator shows the gross-to-annual relationship, and the W-4 withholding calculator lets you adjust how much is held back from each check so a year-end surprise does not go either direction.

Frequently Asked Questions

Will my bonus really be taxed at 22%? In withholding terms, often yes. In actual liability terms, only if 22% is your true marginal bracket.

Can I ask my employer to withhold less on a bonus? Generally no for the percentage method, but you can adjust your regular W-4 to compensate across the year.

Do commissions count as supplemental wages? Yes, commissions and overtime premiums are common supplemental wages and follow the same two-method rule.