Tax Planning How Bonuses Are Taxed: Free Bonus Tax Calculator + Guide Read the Article Play Video Open Share Drawer Share this: Click to share on Facebook (Opens in new window) Facebook Click to share on X (Opens in new window) X Click to share on LinkedIn (Opens in new window) LinkedIn Click to share on Pinterest (Opens in new window) Pinterest Click to print (Opens in new window) Print Written by TurboTaxLisa Published Jan 9, 2024 - [Updated Jul 23, 2025] 7 min read On July 4, 2025, the legislation known as the "One Big Beautiful Bill" was signed into law and contains significant tax law changes. For more information, see our One Big Beautiful Bill Summary & Tax Changes article. If you received a bonus, you’re likely curious about taxes. You might be asking, “How are taxes withheld from your bonuses when you receive them?” While the prospect of a holiday bonus or some extra cash can be uplifting, understanding how your bonus is taxed can help you determine how much money you’ll receive after taxes. The IRS views any bonus you receive as wages. This means that almost all bonuses are taxed. That said, some bonuses and gifts aren’t taxable, like certain fringe benefits. Additionally, with recent tax reform via the One Big, Beautiful Bill, qualified overtime of up to $12,500 can be deducted for tax years 2025 through 2028. In this guide, we’ll discuss tips for receiving bonuses and explain how you can use our bonus tax calculator to determine the amount of taxes to be withheld when you receive it. Table of Contents Key takeawaysAre taxes withheld when you receive a bonus?How are bonus taxes calculated?What are the pros of each bonus tax method?What are the cons of each bonus tax method?Are there any bonuses that might not be taxable?Are bonuses taxed federally and by the state?Are there ways to minimize bonus taxes?What happens if too many taxes are withheld from your bonus?Lower the bonus taxes you owe and maximize your refund Key takeaways Most bonuses are treated as taxable income, but there are some exceptions, like cash equivalents, vacation, and fringe benefits. If your bonus is issued with your paycheck, your bonus will be taxed at the same rate as the rest of your pay. If your bonus is issued separately from your paycheck, your bonus will be taxed at the 22% federal tax rate for bonuses under $1 million. For bonuses over $1 million, a 37% tax rate applies to the amount that exceeds the first million. Are taxes withheld when you receive a bonus? At the time of receipt of your bonus, federal taxes are typically withheld by your employer, which can be at a higher tax rate than your actual tax rate used when you file your taxes. But don’t worry, since your actual tax rate based on your total taxable income for the year could be lower, you may get back some of what was withheld from your bonus as part of your federal tax refund. How are bonus taxes calculated? Employers typically use either of two methods for calculating federal tax withholding on your bonus: The aggregate method The percentage method Check out our bonus calculator. This tool answers one of our most frequently asked questions. You’ll get an estimate of how much federal taxes you can expect to be withheld from your bonuses when you receive them. How Your Bonuses are Taxed — — — Aggregate method If you receive your bonus along with your paycheck, your employer will use the aggregate method to calculate your withholding. With the aggregate method, your employer or payroll provider will withhold federal taxes at the same percentage that’s normally withheld from your paycheck. If 35% is withheld when you are paid, then your employer will withhold 35% from your bonus as well. Percentage method When your employer issues your bonus separate from your paycheck, your employer or payroll provider will withhold taxes using the percentage method. The percentage method is the simplest way to withhold bonus taxes since your employer or payroll provider will withhold federal taxes at a flat 22% rate and not at your normal tax rate when you are paid. If you get an especially large bonus that’s over $1 million, the additional amount will be withheld at 37%. Generally, most employers and payroll providers choose to use the percentage method. Under tax reform, the federal tax rate for withholding on a bonus was lowered to 22%, down from the federal income tax rate of 25%. What are the pros of each bonus tax method? The pros of each method depend on what your regular tax rate is. If you are in a lower tax bracket with a lower tax rate, then being taxed at your regular lower tax rate in the aggregate method, as opposed to the percentage method at 22%, is probably more beneficial to you. If you are in a higher income bracket and your tax rate is over 22% then having taxes withheld using the percentage method will give you more of your bonus but you may end up owing taxes if not enough is withheld on your bonus income. What are the cons of each bonus tax method? There are downsides to both the aggregate and percentage methods. The aggregate method can add unnecessary confusion to your bonus taxes because your income tax rate comes into play, which involves your W-4 form. In some cases, it can lead to paying a larger percentage of your bonus in taxes, which also means you have access to a smaller portion of your bonus. If your regular tax rate is higher than the flat 22% rate used in the percentage method, then the percentage method provides you with more of your bonus than the aggregate method. However, this could result in a smaller tax refund or possible taxes owed. At the end of the day, the method used by your employer or payroll provider depends on if you receive your bonus together with your paycheck or separately. For a contractor bonus, taxes are not withheld since you are considered self-employed, so it’s best to use tax-saving tips for contractors included here. Are there any bonuses that might not be taxable? Bonuses you receive from your employer are considered supplemental income. This means they’re taxable by the IRS. However, certain fringe benefits may not be considered taxable bonuses. This includes benefits like occasional event tickets and gift baskets. New tax reform for overtime pay While it’s not a traditional bonus, overtime pay adds to your paycheck at various intervals throughout the year. Fortunately, you now get to keep more of this money in your pocket. As of July 4, 2025, the One Big, Beautiful Bill has established a new tax provision for overtime. For tax years 2025 through 2028, you may be able to deduct qualified overtime income of up to $12,500 ($25,000 if married filing jointly). How does this deduction work? First, it’s important to note that this credit phases out for income over $150,000 ($300,000 for joint filers). When calculating this deduction, your tax savings will depend on your applicable tax rate. For example, if your tax rate is 24% and you’re filing as a single taxpayer, your maximum tax savings would be $3,000. This deduction is especially beneficial to taxpayers who work in roles such as police officers, nurses, and others who are likely to work a significant amount of overtime. Are bonuses taxed federally and by the state? Bonuses are always federally taxed, and some states may have additional taxes for bonuses. Bonus tax rates vary from state to state, so you can check your state tax regulations to determine your tax rate. Are there ways to minimize bonus taxes? There are several ways you can minimize the amount of bonus taxes you owe, but it’s important to abide by federal and state tax laws. A tip for minimizing bonus taxes: Ask your employer to defer your bonus until next year. What happens if too many taxes are withheld from your bonus? If an excessive amount of taxes are withheld from your bonus, you may get some of what was withheld back in the form of a tax refund when you file your taxes. Lower the bonus taxes you owe and maximize your refund Tax season can bring about new tax implications, especially if you recently received your first bonus. Our bonus tax calculator makes it easy to estimate how much taxes will be withheld from your bonus when you receive it. That way, you can get an estimation of how much of your bonus you will keep and figure out what moves you can make to help your finances and tax outcome. Try our bonus calculator for an estimate of your bonus tax withholding. No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund – guaranteed. Get started Previous Post How to File Small Business Taxes Next Post Don’t Let Filing Multiple W-2s Scare You Written by Lisa Greene-Lewis Lisa has over 20 years of experience in tax preparation. Her success is attributed to being able to interpret tax laws and help clients better understand them. She has held positions as a public auditor, controller, and operations manager. Lisa has appeared on the Steve Harvey Show, the Ellen Show, and major news broadcast to break down tax laws and help taxpayers understand what tax laws mean to them. For Lisa, getting timely and accurate information out to taxpayers to help them keep more of their money is paramount. More from Lisa Greene-Lewis Follow Lisa Greene-Lewis on Twitter. 27 responses to “How Bonuses Are Taxed: Free Bonus Tax Calculator + Guide” This year I received a one-time bonus, a severance package, a vacation buy out, relocation assistance, a signing bonus, and an annual Manager Incentive Plan bonus. This totaled $187K above my normal salary. Of these sources of supplemental wages, the only one I expect to see again is the annual MIP bonus (~$20K annually). Uncle Sam took me to the cleaners (at least what has been withheld). How do I income average over 5 years in Turbo Tax so that I’m not taking as big of a hit this year, and does it even make a difference? My base salary is about $125K. Alison, Matt & Patrick Nguyen are correct. There are a lot of misleading blog-posts out there, especially by Intuit, that lead people to believe, that, supplemental income such as bonus checks are taxed differently than regular wages. It’s the WITHHOLDING, not the actual tax liability. Look at a 1040 or a W2. Is there a box for bonus/supplemental income? The net amount in your pocket will be the same either way – after you file your return. That does not suggest that you should ignore choosing the more ideal method of withholding calculation for your individual tax situation to keep from giving Uncle Sam an interest free loan. The wording in the bonus calculator is incorrect. It says that bonuses “may be taxed at a higher rate” or “will be taxed at a flat 25% rate.” This is incorrect. The TAX WITHHOLDING is different, but the actual TAX is calculated when the return is filed. Hello, I earn $250K annually (w2) and received a $80,000 contract signing bonus. I am told my net bonus will only be $42,266 after taxes. This seems wrong to me. I live in New York State. Larry, Welcome to NYS. Highest taxes lowest wages… My employee claim exempt and have the bonus payout. Should we withhold as flat rate for tax? Hello! I am a school teacher at a school that is closing. The school will be paying out my entire summer pay in one check. I am concerned that the tax withholding will eat into the funds that I need to sustain my household. I am in the 25% tax bracket in my pay. The lump payment will be for an entire month’s pay (two payments). What would be a “safe” amount to increase my deductions to for this payment?? Hi, I will receive a relocation bonus $20K from future employer. I have an option to get that bonus now (currently live in CA) or later (when I will move to WA) – the employer is in WA. Does it make sense to wait till I move to WA before accepting the bonus (in terms of paying less state tax)? For purpose of this calculation we can use annual base salary at $160K+ (excluding this bonus, etc.)… Please advice! Thanks in advance Please this is my first time am filing, i only want to put my Wages and Federal Tax W/H…. I don’t want to include Soc Sec Wages and Medicare Tax W/H… Hope it won’t stop my payment.. Can I claim the money that I have sent to a relative that is in TDC ? I purchased a travel trailer in Delaware with a bank loan. I have paid my Pennsylvania state sales tax for the purchase. I have been told that if it has a bathroom etc it is eligible for a tax deduction is this true ? A travel trailer with a kitchen and a bathroom will qualify as a second home, and the loan interest would be deductible as mortgage interest. If your loan company does not report the interest on form 1098, TurboTax has a box on the screen titled “Tell Us More About Your Loan from …”. Check the box “I did not receiva a 1098. Enter the amount of the interest you paid on the next screen, then Yes on the Was This a Seller-Financed Loan? You can then enter the bank’s information on the next screen. You may need to request the bank’s Federal ID number from the bank if it is not on any of the paperwork you have from the bank. Mary Ellen Thank You I have a 17 yr old daughter who father has managing conservitorship of however she has lived in my home for 2 yrs now. Which i can prove with school records and medicaid. Her father hasnt lived in our city in over a yr n isnt supporting her finacally at all. He claims he can claim her on his 2013 taxes. There is nothing in our court documents stating anything regarding taxes. Can i claim her this yr? Or does he have to.? You should have all rights to claim her. she lives with you. do your taxes before him and once he does his taxes, he wont be able to claim her cause you already did. good luck I am 63 and thinking of retiring next year and have a small annuity ($20,000) which has been tax deferred. How will it affect my taxes if I withdraw it all to pay off a couple of bills so I will be debt free? Hi John, You will be taxed on the amount withdrawn and it will be added to any other income. If your contributions to the plan were included in your gross income before, then part of the distributions may be excluded from income. Here is more information on the taxation of pensions and annuities http://www.irs.gov/taxtopics/tc411.html Thank you, Lisa Greene-Lewis Will I be able to claim my son this year? He moved to Florida in May Hi Tom, Whether you can claim your son depends on a few key factors: -Age -Support -Residency -Relationship Please read more information here https://blog.turbotax.intuit.com/2013/11/22/who-qualifies-as-a-dependent-on-your-tax-return/ Thank you, Lisa Greene-Lewis We received a lease bonus check from Gas and Oil company of 60 thousand, does this just get added to our yearly income? How much tax would I expect to pay on $60.000, when our family only makes 30,000 a year with one dependent under age of 17, Thank you. Hi Susan, Your lease bonus check would be added to your total yearly income. You should receive a 1099-misc. I don’t know all of your tax deductions to determine your taxable income, but you would be taxed at a higher tax rate based on both your regular income and the lease bonus income. Please see this article for 2013 tax rates https://turbotax.intuit.com/tax-tools/tax-tips/IRS-Tax-Return/2013-Federal-Tax-Rate-Schedules/INF12044.html Thank you, Lisa Greene-Lewis Is this true? Would love to see a calculator for the opposite. Ie., you received regular monthly or quarterly bonuses. How much will you get back if your employer uses the aggregate method and your tax rate for each bonus period was significantly higher than your regular tax rate? I get paid every 2 weeks ? Way to go for perpetuating the myth that bonuses are taxed differently than regular income. The word you are looking for is “withheld,” not taxed. Great point Alison. Your Tax is the same with either method. The difference is just how much you owe or get in a refund at the end of the year. The Aggregate method is the best way for you to end up owing a small amount. This is the ideal situation for most people. It really is bad advice to suggest that the flat 25% is somehow good for people or might save them something. Browse Related Articles Income and Investments Are Bonuses Taxed? How Bonuses Are Taxed and Treated by the IRS Work How Bonuses Received as a Contractor Are Taxed Self-Employed How Holiday Bonuses are Taxed for Contract Workers Income and Investments A Visual Guide to Taxing Bonuses [Infographic] Tax Planning Holiday Bonus Taxes 401K, IRA, Stocks What Happens to Employees When a Company Goes Public? Tax Tips The Tax Implications of Receiving a Holiday Bonus Taxes 101 Taxes 101:Tax Brackets Income and Investments Bonus Round: 5 Tips for Your Work Bonus Taxes 101 What Are Tax Brackets?
This year I received a one-time bonus, a severance package, a vacation buy out, relocation assistance, a signing bonus, and an annual Manager Incentive Plan bonus. This totaled $187K above my normal salary. Of these sources of supplemental wages, the only one I expect to see again is the annual MIP bonus (~$20K annually). Uncle Sam took me to the cleaners (at least what has been withheld). How do I income average over 5 years in Turbo Tax so that I’m not taking as big of a hit this year, and does it even make a difference? My base salary is about $125K.
Alison, Matt & Patrick Nguyen are correct. There are a lot of misleading blog-posts out there, especially by Intuit, that lead people to believe, that, supplemental income such as bonus checks are taxed differently than regular wages. It’s the WITHHOLDING, not the actual tax liability. Look at a 1040 or a W2. Is there a box for bonus/supplemental income? The net amount in your pocket will be the same either way – after you file your return. That does not suggest that you should ignore choosing the more ideal method of withholding calculation for your individual tax situation to keep from giving Uncle Sam an interest free loan.
The wording in the bonus calculator is incorrect. It says that bonuses “may be taxed at a higher rate” or “will be taxed at a flat 25% rate.” This is incorrect. The TAX WITHHOLDING is different, but the actual TAX is calculated when the return is filed.
Hello, I earn $250K annually (w2) and received a $80,000 contract signing bonus. I am told my net bonus will only be $42,266 after taxes. This seems wrong to me. I live in New York State.
Hello! I am a school teacher at a school that is closing. The school will be paying out my entire summer pay in one check. I am concerned that the tax withholding will eat into the funds that I need to sustain my household. I am in the 25% tax bracket in my pay. The lump payment will be for an entire month’s pay (two payments). What would be a “safe” amount to increase my deductions to for this payment??
Hi, I will receive a relocation bonus $20K from future employer. I have an option to get that bonus now (currently live in CA) or later (when I will move to WA) – the employer is in WA. Does it make sense to wait till I move to WA before accepting the bonus (in terms of paying less state tax)? For purpose of this calculation we can use annual base salary at $160K+ (excluding this bonus, etc.)… Please advice! Thanks in advance
Please this is my first time am filing, i only want to put my Wages and Federal Tax W/H…. I don’t want to include Soc Sec Wages and Medicare Tax W/H… Hope it won’t stop my payment..
I purchased a travel trailer in Delaware with a bank loan. I have paid my Pennsylvania state sales tax for the purchase. I have been told that if it has a bathroom etc it is eligible for a tax deduction is this true ?
A travel trailer with a kitchen and a bathroom will qualify as a second home, and the loan interest would be deductible as mortgage interest. If your loan company does not report the interest on form 1098, TurboTax has a box on the screen titled “Tell Us More About Your Loan from …”. Check the box “I did not receiva a 1098. Enter the amount of the interest you paid on the next screen, then Yes on the Was This a Seller-Financed Loan? You can then enter the bank’s information on the next screen. You may need to request the bank’s Federal ID number from the bank if it is not on any of the paperwork you have from the bank. Mary Ellen
I have a 17 yr old daughter who father has managing conservitorship of however she has lived in my home for 2 yrs now. Which i can prove with school records and medicaid. Her father hasnt lived in our city in over a yr n isnt supporting her finacally at all. He claims he can claim her on his 2013 taxes. There is nothing in our court documents stating anything regarding taxes. Can i claim her this yr? Or does he have to.?
You should have all rights to claim her. she lives with you. do your taxes before him and once he does his taxes, he wont be able to claim her cause you already did. good luck
I am 63 and thinking of retiring next year and have a small annuity ($20,000) which has been tax deferred. How will it affect my taxes if I withdraw it all to pay off a couple of bills so I will be debt free?
Hi John, You will be taxed on the amount withdrawn and it will be added to any other income. If your contributions to the plan were included in your gross income before, then part of the distributions may be excluded from income. Here is more information on the taxation of pensions and annuities http://www.irs.gov/taxtopics/tc411.html Thank you, Lisa Greene-Lewis
Hi Tom, Whether you can claim your son depends on a few key factors: -Age -Support -Residency -Relationship Please read more information here https://blog.turbotax.intuit.com/2013/11/22/who-qualifies-as-a-dependent-on-your-tax-return/ Thank you, Lisa Greene-Lewis
We received a lease bonus check from Gas and Oil company of 60 thousand, does this just get added to our yearly income? How much tax would I expect to pay on $60.000, when our family only makes 30,000 a year with one dependent under age of 17, Thank you.
Hi Susan, Your lease bonus check would be added to your total yearly income. You should receive a 1099-misc. I don’t know all of your tax deductions to determine your taxable income, but you would be taxed at a higher tax rate based on both your regular income and the lease bonus income. Please see this article for 2013 tax rates https://turbotax.intuit.com/tax-tools/tax-tips/IRS-Tax-Return/2013-Federal-Tax-Rate-Schedules/INF12044.html Thank you, Lisa Greene-Lewis
Would love to see a calculator for the opposite. Ie., you received regular monthly or quarterly bonuses. How much will you get back if your employer uses the aggregate method and your tax rate for each bonus period was significantly higher than your regular tax rate?
Way to go for perpetuating the myth that bonuses are taxed differently than regular income. The word you are looking for is “withheld,” not taxed.
Great point Alison. Your Tax is the same with either method. The difference is just how much you owe or get in a refund at the end of the year. The Aggregate method is the best way for you to end up owing a small amount. This is the ideal situation for most people. It really is bad advice to suggest that the flat 25% is somehow good for people or might save them something.