How are bonuses taxed? The 22% "higher rate" myth

The myth: "bonuses are taxed at a higher rate"

They aren't. There's no special "bonus tax bracket." A bonus is ordinary income, taxed at your normal rates. What confuses everyone is how it's withheld — the money your employer holds back and sends to the IRS up front.

What really happens: flat 22% withholding

When a bonus is paid separately (or listed separately on your check), the IRS lets employers use the percentage method: withhold a flat 22% for federal income tax on supplemental wages up to $1,000,000 a year. Above $1M in a year, the excess is withheld at a mandatory 37%. That 22% has nothing to do with your personal bracket — it's a fixed rate applied to everyone.

The part nobody tells you: you may get it back

Here's the key. That 22% is withholding, not your final tax. Your actual tax on the bonus is whatever your marginal rate is once your whole year is added up. If your top rate is 10% or 12%, the flat 22% withheld too much — and the difference comes back as part of your refund. If your top rate is 24%+, the 22% withheld a little short, and you'd cover the gap at filing.

The aggregate method (why yours might differ)

If your employer lumps the bonus into a normal paycheck instead of paying it separately, they may use the aggregate method — withholding as if that whole check were your regular pay, based on your W-4. That can withhold more or less than a flat 22%. Same final tax, different up-front bite.