Two legitimate methods
Employers may withhold 22% flat on supplemental wages up to 1 million (37% above that), or use the aggregate method — adding the bonus to regular pay, computing tax on the total, and subtracting what was already withheld.
Why your bonus feels overtaxed
At the 22% flat rate, a bonus for someone in the 32% bracket is under-withheld, producing a smaller refund or a bill in April. Conversely, someone in the 12% bracket sees 22% withheld and gets the difference back. The rate is a withholding convention, not the final tax.
What changes the answer
- Your marginal bracket relative to 22%
- Whether the bonus pushes you over a bracket threshold
- 401(k) contributions from the bonus, if your plan allows
- State withholding, which follows its own rules
Planning a bonus
If you can choose timing, receiving a bonus in January rather than December defers the tax by a year. If you are near a bracket edge, increasing 401(k) contributions from the bonus is the cleanest way to reduce the hit.
Frequently Asked Questions
Is the bonus taxed at a higher rate?
It is withheld at 22%, but taxed at your marginal rate — the difference settles at filing.
What is the aggregate method?
Adding the bonus to regular wages, computing tax on the whole, then subtracting prior withholding.
Can I ask for lower withholding?
You can adjust your W-4, but the liability does not change — only the timing.
Assumptions & disclaimer
Results are estimates for planning. Fee schedules, tax brackets and deduction limits change; confirm current figures with the marketplace, the IRS or a qualified accountant before making decisions. Nothing here is financial, tax or legal advice.
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