Bonus Tax Calculator
Work out what a bonus nets after withholding, or flip to gross-up mode to find the gross bonus needed for an employee to take home a specific amount. Uses the IRS supplemental wage method: a flat 22% federal rate on supplemental wages up to $1 million, and 37% on anything above.
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Bonuses, owner distributions and year-end payroll decisions all have a tax shape worth planning before December. Book a free 30-minute call with an Ex-PwC CA to get ahead of it.
Book Your Free 30-Min Call →The Supplemental Wage Rate
Bonuses, commissions, severance and other payments outside regular wages are classed by the IRS as supplemental wages. When paid separately from a regular paycheque, employers may withhold federal income tax at a flat rate rather than running it through the employee's W-4 calculation. That flat rate is 22% on the first $1 million of supplemental wages an employee receives in a calendar year, and 37% on everything above that threshold — which is why the year-to-date field matters for highly compensated staff.
FICA still applies in full: 6.2% Social Security up to the annual wage base and 1.45% Medicare with no cap, from both the employee and you. State withholding varies; enter your state's supplemental rate.
Withholding Is Not the Same as Tax Owed
This is the point employees most often misunderstand, and it's worth explaining when you hand over the payslip. The 22% flat rate is a withholding rate, not a tax rate. If the employee's actual marginal rate is 12%, they have overpaid and will get the difference back at filing. If it's 32%, they have underpaid and will owe. Nothing about the bonus is taxed "at a higher rate" — it's simply withheld at a standard rate that rarely matches anyone exactly.
When to Use Gross-Up
Gross-up mode answers the question owners actually ask: "I want them to receive $5,000 — what do I run through payroll?" It solves backwards through the withholding to find the gross figure. Common uses are relocation payments, referral bonuses and retention payments where the promised number is the net.
Paying yourself rather than staff? See owner's draw vs salary.
Budget for the employer side too. On top of the grossed-up figure you still owe your 7.65% FICA match, which the Total Cost to You figure includes. A $5,000 net promise typically costs closer to $8,000 once everything is counted.
Frequently Asked Questions
Are bonuses taxed higher than salary?
No. They are withheld at a flat 22% supplemental rate, which is often higher than the employee's actual marginal rate. Any excess comes back as a refund at filing. The underlying tax treatment is identical to regular wages.
What happens above $1 million in supplemental wages?
The portion above $1 million in a calendar year must be withheld at 37%, and the flat-rate method becomes mandatory rather than optional for that portion. Enter year-to-date supplemental wages so the calculator applies the split correctly.
Can I add a bonus to a regular paycheque instead?
Yes. Combining it with regular wages means withholding follows the aggregate method using the employee's W-4, which usually withholds less but is harder to predict. Paying separately with the flat rate is simpler for both sides.
Is a bonus deductible for my business?
Employee bonuses are generally deductible as compensation in the year paid, provided they are reasonable and for services rendered. Accrual-basis employers may be able to deduct bonuses paid shortly after year end. Confirm the timing with your CPA.