You worked hard all year. The company announces a $20,000 bonus. You do the mental math: 'That's $20K!' But when the check arrives, it's $11,800. Half of it is gone. Where did $8,200 go? You're not crazy, and you're not being defrauded. The IRS withholds bonuses at a flat 22% federal rate, plus FICA, plus state tax. But here's the twist: you may get most of it back at tax time, and understanding the mechanics helps you plan better.
The 22% supplemental withholding rule is the foundation. When employers pay 'supplemental wages' (bonuses, commissions, severance, and similar non-regular pay), the IRS allows them to withhold federal taxes at a flat 22% rate rather than calculating what would be withheld on regular wages. This applies to amounts under $1 million per year — above that, mandatory 37% withholding kicks in.
Why 22%? It's a compromise between under-withholding and over-withholding. The 22% rate corresponds to the third federal bracket (which kicks in at $49,850 of taxable income for single filers in 2026). The IRS chose this rate as a reasonable approximation for most workers. But for high earners in the 32%, 35%, or 37% brackets, 22% is dramatically under-withheld. For low earners in the 10% or 12% brackets, 22% is dramatically over-withheld.
Let's run a $20,000 bonus example. The 22% federal withholding takes $4,400. Social Security at 6.2% (assuming you're below the $184,500 wage base) takes $1,240. Medicare at 1.45% takes $290. State withholding varies — California would take 6-9.3% depending on income level, so let's say $1,400 (7%). Total withheld: $4,400 + $1,240 + $290 + $1,400 = $7,330. That leaves $12,670 in your check, or 63.4% of the gross bonus. Significantly more than half, but it still feels like a huge bite.
Now consider the actual tax cost — what you actually owe at filing time. Your bonus is added to your other income for the year. If you earn $80,000 in regular salary and receive a $20,000 bonus, your taxable income is $84,200 (after standard deduction). Your marginal federal rate is 22% — exactly what was withheld. So at filing time, you owe roughly what was withheld. Net change: nearly zero.
But if you earn $200,000 in regular salary and receive a $20,000 bonus, your marginal federal rate is 24% (you're in the bracket from $103,350 to $197,300 single, then 24% above $197,300). The bonus was withheld at 22% but you owe 24%. You'll owe an additional 2% × $20,000 = $400 at tax time. Modest under-withholding.
If you earn $400,000 in regular salary and receive a $50,000 bonus, the math gets ugly. Your marginal federal rate is 35%. The bonus was withheld at 22% but you owe 35%. You'll owe additional 13% × $50,000 = $6,500 at filing. The 22% withholding rate was massively under-withheld for your bracket.
Conversely, if you earn $30,000 in regular salary and receive a $5,000 bonus, the IRS withheld 22% × $5,000 = $1,100 federal. But your marginal bracket is 12%. You over-withheld by 10% × $5,000 = $500. You'll get this back as part of your tax refund.
There's another method employers can use: the aggregate method. They calculate what would be withheld if your bonus was added to a regular paycheck and use the regular withholding tables. For someone earning $200K with a $20K monthly bonus, this might calculate as if you were earning $260K annually — putting your withholding in the 32% bracket. So $20K bonus × 32% = $6,400 withheld. That's actually closer to your real marginal rate.
The aggregate method generally produces more accurate withholding (closer to your actual marginal rate), but it's more complex for employers, and the resulting check feels worse to the employee. Most employers use the simpler 22% flat rate and let the difference settle out at tax filing.
FICA adds further confusion. The 7.65% combined employee FICA (6.2% Social Security + 1.45% Medicare) applies to bonuses regardless of method. If you've already exceeded the Social Security wage base ($184,500 for 2026) on your regular paychecks, the 6.2% portion drops off, leaving only 1.45% Medicare. High earners with year-end bonuses often see less FICA on those checks because they've already capped out Social Security.
State withholding adds more variation. California's state withholding on supplemental wages is 6.6% for stock options (a special rule) but typically tracks regular state withholding for cash bonuses. New York uses graduated rates. Texas has no state income tax, so the bonus is just federal + FICA. Knowing your state's specific supplemental wage rules helps you plan more accurately.
The strategic implications: if you're getting a large bonus and you're in a high tax bracket, set aside additional money for the eventual tax bill. The 22% withholding likely under-withheld for your situation. Don't spend the entire 'extra' check before knowing your year-end tax liability.
If you're in a lower bracket, you're effectively giving the IRS a short-term interest-free loan. You'll get the over-withholding back as a refund — but you've lost the use of that money for several months. Adjusting your W-4 to reduce regular withholding can compensate, putting that money in your pocket throughout the year.
The marginal rate that matters is the bracket where your bonus 'lands' after stacking on regular income. For most people earning $80K-$200K, the bonus likely lands in the 22% or 24% bracket — close enough to the 22% withholding that you won't see major surprises at filing. For high earners stacking bonus into the 32%+ brackets, expect to owe additional tax in April. Plan accordingly with quarterly estimated payments or increased withholding from regular paychecks during the bonus period.