Year-end bonus season brings the same question every December: why did a $1,000 bonus turn into about $700? This post explains how the IRS treats bonuses for withholding in 2026, the two methods an employer can use, and what to show on the pay stub. It follows section 7 of IRS Publication 15 (2026), Supplemental Wages.
Are bonuses taxed higher?
No. A bonus is part of your wages for the year and is taxed at your normal federal income tax rates on your return. It can look higher because of how the employer withholds on it. IRS Publication 15 calls bonuses supplemental wages, alongside commissions, overtime pay, back pay, awards and severance pay, and gives them their own withholding options.
Social Security and Medicare are the same on a bonus as on any wages: 6.2% Social Security on wages up to the 2026 wage base of $184,500, and 1.45% Medicare on all of it, with the employer matching both. Publication 15 says supplemental wages are subject to Social Security, Medicare and FUTA whatever withholding method is used.
The two ways employers withhold on a bonus
If the bonus is paid on its own, or paid with regular wages but shown as a separate amount, and the employer withheld income tax from your regular wages this year or last year, the employer can use either method. If no income tax was withheld from your regular wages in either year, it must use the aggregate method. If the bonus is lumped into regular pay without being shown separately, it is withheld as one regular paycheck.
| Method | How it works | Usually means |
|---|---|---|
| Optional flat rate | Withhold exactly 22% of the bonus; no other percentage is allowed | Simple and predictable; more than the final tax for people in the 10% or 12% bracket |
| Aggregate | Add the bonus to the regular wages for the period, work out withholding on the total as one paycheck, subtract what was withheld from the regular wages | Can withhold a lot on a large bonus, because the combined check is annualized |
| Mandatory flat rate | 37% on supplemental wages over $1 million in the year, regardless of Form W-4 | Only for very large bonuses |
Publication 15 says the 22% and 37% rates continue because the 2025 law (P.L. 119-21) made the individual tax rates permanent. Your Form W-4 doesn't change the 22% flat-rate calculation.
How much tax is taken out of a $1,000 bonus?
Under the flat method, $296.50 federal, before any state tax. The example assumes the bonus is paid separately, income tax was withheld from regular pay this year, and the employee's 2026 wages stay under the Social Security wage base.
| Line | Rate | Amount |
|---|---|---|
| Bonus (gross) | $1,000.00 | |
| Federal income tax | 22% | −$220.00 |
| Social Security | 6.2% | −$62.00 |
| Medicare | 1.45% | −$14.50 |
| Net before state and local tax | $703.50 |
Whether $220 is too much or too little depends on the rest of the employee's year. For someone whose top bracket is 12%, the final income tax on the bonus is lower and the difference comes back as a refund. For someone in the 24% bracket or higher, 22% is slightly short and they owe the rest when they file.
States add their own withholding. Some have a set rate for supplemental wages and others use the regular method, so check your state's withholding rules.
Christmas bonuses, gift cards and holiday gifts
- A cash Christmas bonus is a supplemental wage like any other bonus.
- Gift cards count as cash. IRS Publication 15-B says cash and cash equivalents such as gift cards are never excludable as a small (de minimis) benefit, however low the amount, so they go through payroll as wages.
- Holiday gifts other than cash with a low fair market value, such as a turkey or a gift basket, are an example of a de minimis benefit in Publication 15-B and are generally not taxed.
- A bonus is taxed in the year it is paid. A bonus for 2026 paid in January 2027 belongs on the 2027 Form W-2.
How a bonus shows on the pay stub
Show the bonus as its own earnings line, not folded into regular pay. That makes the withholding method visible, matches Publication 15's condition that the bonus be identified separately for the flat rate, and gives you a clean year-to-date figure. A bonus paid on its own date gets its own stub.
If the bonus is non-discretionary (promised for production, attendance or a target) and the employee is non-exempt, it also raises their regular rate for overtime in the weeks it covers. Our post on how to calculate overtime has a worked example.
Where PayDocs fits
The PayDocs pay stub generator has a one-tap Bonus line, so the bonus shows separately from salary or hours with its own year-to-date total. PayDocs works out federal income tax, Social Security, Medicare and supported state taxes for 2026 pay dates (see what we calculate). The free paycheck calculator estimates a regular 2026 paycheck if you want to compare.
PayDocs doesn't choose a withholding method for you or deposit taxes. This is general information, not tax advice.
Questions
Are bonuses taxed higher than regular pay?
No. A bonus is taxed at your normal income tax rates when you file. It can look higher because employers often withhold a flat 22% federal income tax on it, or annualize it with your regular pay under the aggregate method.
What is the federal bonus tax rate for 2026?
The optional flat withholding rate is 22%, and 37% on supplemental wages over $1 million in the year. Those are withholding rates; the actual tax depends on your total income for the year.
How much tax is taken out of a $1,000 bonus?
With the 22% flat method: $220 federal income tax, $62 Social Security and $14.50 Medicare, so $296.50, leaving $703.50 before state and local tax. Your return then settles whether $220 was too much or too little.
Are gift cards from my employer taxed?
Yes. IRS Publication 15-B says cash and cash equivalents such as gift cards are never excludable as de minimis benefits, whatever the amount, so they are wages.
Can an employer use the 22% rate if it withheld no tax from my regular pay?
No. If no federal income tax was withheld from your regular wages in the current or preceding year, Publication 15 requires the aggregate method, which adds the bonus to regular wages and withholds on the total.
Sources
- IRS: Publication 15 (2026), Employer's Tax Guide
- IRS: Publication 15-B (2026), Employer's Tax Guide to Fringe Benefits
- IRS: Publication 15-T (2026), Federal Income Tax Withholding Methods
- U.S. Department of Labor: Fact Sheet #56A, Overview of the Regular Rate of Pay under the FLSA
Sources checked October 7, 2026. This article explains how pay documents work; it is not tax or legal advice.
