[Amanda]

I’ve been telling everyone that bonuses will always be taxed at your marginal tax rate. Recently I’ve been told by several people that many states (California, Texas, and a few others) actually do tax bonuses at a higher rate).

Have I been wrong all along, or is just still a case of how taxes are withheld and not taxes you actually owe?

[David]

I’ve processed payroll for several companies for several years;
When taxes are deducted from a bonus they should be entered as supplemental income (flat 22% federal, + 7.65% for ss&med) for a total of 29.65%.

This may or may not be enough withheld. So, to some it may feel like it’s taxed at a higher rate—-however at the end of the year you’ll get 1 W2 with income (including regular, overtime, supplemental,etc) all together.

This is what your taxes are based on.

Bonuses are NOT taxed differently in the end- it all washes at tax time.

[Garrett]

Bonus taxes are withheld at a higher rate for federal income tax (typically 22%) but it is treated as any other income when you file your taxes.

If more was withheld than you actually owe on the bonus, you get it back as part of your tax refund.

[Yang]

My husband gets 2x bonus per year. I think they are taxed at a higher rate. Last I calculated and it was around 37%.

He’s a software engineer working for a Fortune 500 company.

[Serena]

I believe this is incorrect. My husband gets a bonus every year (as well as overtime). Please always think it is taxed more. However I just double checked his 2024 W-2.

There is no supplemental income listed.

He works for a multi billion dollar company, and I don’t think they are doing their W-2’s wrong.

[Nikhil]

Bonus may be withheld differently but taxed exactly the same as regular income, both state and Federal.

IRS only cares about how much you earned, not whether it was earned as salary or bonus or some combination thereof.

[Tonya]

Where is the line on a 1040 for you to list your bonus income? No such line exists. Where is the box on a W-2 which separates out bonus income? No such box exists.

Since your wages and your bonus are lumped together into one amount, it is not possible to tax them differently.

This blurb from “The Currency” is nonsense.

[Jeff]

My employer holds out a minimum of 22% federal income tax, 6.2% Social Security, 1.45% Medicare and 4.7% state income tax.

It’s immutable.

[Donna]

Whether it’s taxed higher or lower than your other income at the time it’s paid depends on your tax bracket.

But all evens out at tax time anyway.

[Brian]

It’s taxed the same as any other income. The idea behind higher withholding is that you’re normally withholding based on your based income so bonus income would impact your taxes as marginal income.

But at the end of the day earning $X+Y base will have the same tax impact after filing as $X base and $Y bonus.

[Scott]

You’re right at the end of the day. The part you’re missing, is that bonuses are whacked at around 24% upfront.

Then, when said person files their taxes the actual amount is settled up via a credit or bill depending on the individuals tax bracket.

So, you’re right, but to the layman, it feels painful upfront.

[Audrey]

They are withheld at a different rate than earnings but it comes pit in the wash at the end of the year. It’s all considered income on the return.

The challenge is to adjust the rest of withholdings to try to maximize cash in pocket over the year.

[Sean]

Idk the answer to your question about state taxes but I wanted to add this about federal taxes.
For the record lots of people are wrong on the withholding part as well.

Bonuses and other supplemental income are withheld either at a flat rate or an aggregate rate. Flat rate is 22% or 37% after a million dollar bonus.

Aggregate method is just assuming that is your income in every paycheck, and taxes are withheld at the corresponding rate.

Every employer I’ve had uses the aggregate method which usually leads to overwithholding.

The flat 22% rate could lead to over or under withholding depending on your tax bracket.

[Kimberly]

Federal taxes are always withheld higher on bonuses, regardless of state.

[Jimmy]

It all gets trued up when you file your income tax return for the year

[Author]

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