How the Bonus Tax Calculator works

The formula

Step by step

1. A bonus is ORDINARY INCOME, taxed at the same brackets as salary. Nothing in the tax code taxes bonuses at a special rate — what differs is how the employer withholds.
2. Percentage (flat) method: a flat 22% federal on supplemental wages identified separately from regular pay. Above $1,000,000 of supplemental wages in a calendar year, the excess must be withheld at 37% (IRS Publication 15, section 7).
3. Aggregate method: the bonus is added to the pay period's regular wages and withheld using the normal tables. We model this by annualizing — the marginal federal tax the bonus adds on top of the salary — which is what a correct aggregate calculation converges to and is also the true cost of the bonus.
4. FICA applies either way: Social Security at 6.2% only on the part of the bonus still under the annual wage base once salary has used its share, Medicare at 1.45% on all of it, plus the 0.9% Additional Medicare surtax above the statutory threshold.
5. State tax is the marginal ORDINARY state income tax the bonus creates, not a state supplemental withholding rate.

Assumptions & limitations

• State supplemental withholding rates are NOT modeled. Many states publish a separate flat rate for withholding on bonuses; those fifty figures are not in our verified dataset, so we show the annual liability the bonus creates instead of a number we would be guessing at.
• Single job, no other supplemental wages during the year unless entered, and no pre-tax deferral of the bonus into a 401(k) or HSA.
• Withholding is not final tax — the return settles any over- or under-withholding.