Skip to main content

Federal and state taxes

While bonuses are subject to income taxes, they don't simply get added to your income and taxed at your top marginal tax rate. Instead, your bonus counts as supplemental income and is subject to federal withholding at a 22% flat rate.

Our TurboTax Live experts look out for you. Expert help your way: get help as you go, or hand your taxes off. You can talk live to tax experts online for unlimited answers and advice OR, have a dedicated tax expert do your taxes for you, so you can be confident in your tax return. Enjoy up to an additional $20 off when you get started with TurboTax Live

Example: If you receive a $6,000 bonus for the year, you'll likely have $1,320 withheld in federal taxes to be sent to the IRS ($6,000 x .22 = $1,320).

Your bonus may also be subject to state taxes, although the withholding rate will vary depending on your state.

If you receive a very large bonus—over $1 million—some of it will be taxed at a higher rate. You'll have 22% federal tax withheld on the first million, then 37% on bonus funds above the first million.

Example: If you receive a $2 million bonus, you'd pay $590,000 in federal taxes on it

$1,000,000 x .22 = $220,000 tax on first million

$1,000,000 x .37 = $370,000 tax on second million

$220,000 + $370,000 = $590,000 total tax

Other Tax Liabilities

In some cases, you might have additional tax liabilities on the income from your bonus. For example, you will likely have to pay:

TheStreet Recommends

  • The 6.2% Social Security tax on any portion of your bonus that's below the $142,800 Social Security cap for the tax year 2021.
  • The 1.45% Medicare tax.

Maximize your deductions and get every tax break you qualify for when you file your taxes with TurboTax Deluxe. We'll search over 350 tax deductions and credits to make sure you get the maximum refund possible. Start for free, and get up to an additional $10 off TurboTax Deluxe when you file. 

Meeting your tax liabilities

When it comes to actually pay taxes on your bonus, your employer has two options: the percentage method or the aggregate method.

The percentage method is simplest—your employer issues your bonus and withholds taxes at the 22% flat rate—or the higher rate if your bonus is over $1 million.

The aggregate method is used when your employer issues your bonus with your regular salary payment and uses the total amount to calculate the amount of withholding. For example, if you normally withhold 35% of your pay for income taxes, the amount of withholding on your bonus would also be 35%.

Using the aggregate method doesn't mean that you actually have to pay more tax on your bonus. You'd likely qualify for a refund for withholding too much tax money. But it does mean that you could see less of the cash from your bonus upfront.

Use this bonus taxation calculator to figure out how much tax you'd pay on the amount of your bonus using either method, so you can know exactly how much money to expect.

Lowering your tax liabilities

While you can't avoid paying taxes on your bonus entirely, you can use your bonus funds wisely to reduce how much you'll owe at tax time. Use the funds to invest in your 401(k) or IRA to get a tax break.

And if you expect to take a pay cut in the next year—for example, if you're ready to retire—ask your employer to defer your bonus until the following tax year to lower your overall tax liability.

Remember, with TurboTax, we'll ask you simple questions about your life and help you fill out all the right tax forms. With TurboTax, you can be confident your taxes are done right, from simple to complex tax returns, no matter what your situation.