Your employer can withhold federal tax on a bonus at a flat 22%, but the bonus is taxed at your regular rates, just like salary. Below the 22% bracket, some of that withholding comes back at tax time. Above it, the flat rate falls short, so update your W-4 when bonuses are large or regular.
That flat rate is why a bonus looks shrunken when it lands, and it has nothing to do with your bracket. It’s a shortcut the IRS lets payroll use on pay that comes on top of your regular wages, like a bonus or commission. Past the first $1 million of that pay in a year, the rate jumps to 37%.
The rest of the gap is taxes that hit every paycheck. Social Security and Medicare take 7.65% for most workers, your state may take its share, and any 401(k) percentage you’ve set can come out too. None of that is a bonus penalty. Withholding is a down payment on your tax bill, and the real bill comes when you file, with the bonus taxed at the same rates as your salary.
Where you land depends on your marginal tax rate. Say a $5,000 bonus has $1,100 withheld for federal tax, and the whole bonus falls inside one bracket. At 12%, the true federal tax on it is $600, so $500 of that withholding comes back when you file. At 22%, withholding and tax match. At 24%, the tax is $1,200, and the missing $100 shows up as a balance due.
Two moves help. If your bonuses are big or come every year, run the IRS Tax Withholding Estimator and give payroll an updated W-4, the form that sets your withholding, so the shortfall doesn’t pile up until April. And before the bonus is paid, ask whether your 401(k) contribution applies to it. Traditional contributions come out before federal income tax, which lowers the tax itself, not just the withholding.
Judge a bonus by what it adds to your income at your own tax rate, not by the deposit. The deposit is an estimate, and your tax return settles it.
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