Bonus Tax Calculator

Bonus tax withholding is calculated using one of two IRS-approved methods. The flat rate method withholds exactly 22% in federal income tax from bonuses under $1 million — this is the most common approach because it is simple and predictable. The aggregate method combines your regular salary and bonus, calculates the tax on the combined income, subtracts the tax already paid on your salary, and withholds the difference on the bonus — this can result in higher or lower withholding depending on your income. Both methods are estimates of your actual tax liability; the true amount owed is settled when you file your annual return. FICA taxes (Social Security at 6.2% and Medicare at 1.45%) also apply to bonuses, along with state income tax.

The IRS classifies bonuses as 'supplemental wages,' which are subject to a flat 22% federal withholding rate for amounts under $1 million. This rate is set by the IRS for withholding purposes — it is not a special tax rate unique to bonuses. Your actual tax rate on the bonus depends on your total annual income and marginal tax bracket, and will be reconciled when you file your tax return. If your marginal rate is lower than 22%, you will receive a refund; if it is higher, you may owe additional tax. Bonuses over $1 million are withheld at 37%.

You cannot legally avoid tax on a bonus, but you can reduce your taxable income in the same year through legal strategies. Contributing to a traditional 401(k) or 403(b) reduces your taxable income by the amount contributed. Making a deductible IRA contribution, contributing to an HSA if you have a high-deductible health plan, or prepaying deductible expenses like charitable contributions before year-end can lower your overall tax liability. You cannot ask your employer to withhold less than the IRS-mandated rate on supplemental wages, but you can adjust your W-4 withholding for regular paychecks to account for any anticipated over-withholding on your bonus.

For withholding purposes, bonuses are taxed differently — employers must use the flat 22% supplemental rate or the aggregate method rather than the standard paycheck withholding tables. However, for actual tax liability purposes, there is no difference: a dollar of bonus income and a dollar of salary income are both ordinary income taxed at the same federal rates. The difference is only in how withholding is calculated throughout the year. At tax filing, all of your income is combined and taxed according to your filing status and tax brackets, with the total withholding from all sources applied as a credit against your liability.

The aggregate method estimates bonus withholding by combining your regular salary with the bonus amount and calculating the marginal federal income tax rate on the combined total. The calculator determines how much additional tax is owed on the bonus portion by comparing the tax on (salary + bonus) versus the tax on salary alone, then withholds that incremental amount. This method is more precise than the flat 22% rate because it accounts for your actual income level and filing status. For high earners already in the 24%, 32%, or higher brackets, the aggregate method will withhold more than 22% from the bonus. For lower earners in the 12% bracket, it will withhold less.

The after-tax value of a bonus versus a salary increase depends primarily on your marginal tax rate and financial priorities. A salary increase raises your ongoing base pay permanently and affects future raises, retirement contributions, and benefits tied to salary. A bonus is a one-time payment. From a pure tax perspective, both are taxed as ordinary income at the same marginal rate. However, bonuses can be invested immediately as a lump sum, potentially benefiting from compound growth if invested wisely. A salary increase may let you increase pre-tax retirement contributions each paycheck. For most employees, a higher base salary provides greater long-term financial security, but bonuses offer flexibility in how the windfall is deployed.