In 2026, the IRS requires employers to withhold 22% federal income tax on bonus amounts up to $1 million. Bonuses above $1 million are withheld at 37% on the excess. This is confirmed in IRS Publication 15 (2026).

The flat rate method applies a straight 22% federal withholding to the bonus amount when paid separately. The aggregate method adds your bonus to your most recent regular paycheck and calculates withholding on the combined total. The aggregate method can result in higher withholding if the combined amount places you in a higher bracket for that pay period.

Yes. Bonuses are subject to FICA taxes just like regular wages. Social Security is 6.2% on wages up to $176,100 (2026 wage base) and Medicare is 1.45% on all wages. An additional 0.9% Medicare surtax applies on earnings over $200,000 (single) or $250,000 (married filing jointly).

No. Withholding is just a prepayment estimate. Your actual bonus tax is calculated at your effective marginal rate when you file your annual return. If too much was withheld, you get a refund. If too little, you pay the difference.

No. Nine states have no state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Other states tax bonuses but may not have a separate supplemental rate, meaning they use your regular withholding method instead of a dedicated bonus rate.

You cannot avoid taxes on a bonus, but you may reduce the taxable amount by directing the bonus into a pre-tax 401(k) or HSA contribution before payroll is processed, if your employer allows it. Talk to your HR department or a tax advisor for options specific to your plan.

Only the amount that falls into the higher bracket is taxed at that higher rate, not your entire income. The US uses a progressive tax system. However, your bonus could increase your total income enough to cross a threshold, meaning a larger share of your overall income is taxed at the next rate. This is reconciled on your annual return.