The first time I received a bonus I thought, wow, they sure took out a lot of tax. Colleagues and I grumbled over the hefty chunk taken out of our bonuses and complained about being slapped with a higher tax rate than we were accustomed to on our standard paycheck.
Our boss then said something profound: “yeah, but you’ll get it back at tax time.”
Being the nerd who oddly enjoys exploring the ins and outs of taxes, I dug into that statement.
How Bonuses are Taxed
First, let’s begin with an overview of how federal income tax works. Your marginal tax rate – that is, “the percentage of tax applied to each additional dollar of income within a specific bracket”, is determined based on your total income for the year (including bonuses).
A common misconception is that the tax rate associated with your tax bracket applies to all of your income.
For example, a married couple making between $206,701 and $394,600 are in the 24% tax bracket. That does not mean that all of their income is taxed at 24%.
It means the amount above $206,701 and below $394,601 is taxed at 24%. The first $23,850 is taxed at 10%, the amount above $23,850 but below $96,951 is taxed at 12%, and the amount above $96,951 and below $206,701 is taxed at 22%.
You can see how the rate goes up for each level of income, as demonstrated in the table below.
2025 Tax Brackets & Rates
| Tax Rate | For Single Filers | For Married Couples Filing Jointly |
| 10% | $11,925 or less | $23,850 or less |
| 12% | $11,926 to $48,475 | $23,851 to $96,950 |
| 22% | $48,476 to $103,350 | $96,951 to $206,700 |
| 24% | $103,351 to $197,300 | $206,701 to $394,600 |
| 32% | $197,301 to $250,525 | $394,601 to $501,050 |
| 35% | $250,526 to $626,350 | $501,051 to $751,600 |
| 37% | Over $626,350 | Over $751,600 |
So, why was more tax withheld from the bonus than a standard paycheck?
The IRS considers bonuses “supplemental wages“, which are subject to different withholding rules than regular wages. For 2025, the federal withholding rate is a flat 22% for supplemental wages up to $1 million.
Therefore, while more was withheld from your bonus, the tax that you owe at tax time is based on your total income for the year. For many, this simply means that the bonus tax withholding was effectively an overpayment over what you will actually owe (and may lead to a refund).
A bit of caution: this won’t be the case for everyone. For high earners, and in particular those who receive a number of commission/bonus checks throughout the year, the flat 22% rate may actually lead to under withholding (e.g. those in the 32%, 35% and 37% marginal tax brackets). For these individuals/couples, consider adjusting your W-4 to have extra tax withheld each paycheck; or, if your employer allows it, request a higher withholding rate on your bonuses.
A simple, high-level equation for determining refund/payment:
Total Tax Owed – Total Tax Withheld = Tax Refund (if more was withheld than you owed) or Tax Payment (you have to write a check to Uncle Sam because not enough was withheld).
I now find myself offering the same simple statement my boss once explained to us when I hear others worry about bonus taxation: “you’ll get it back at tax time.”
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