Bonus Tax: Aggregate vs Percentage (2025–2026)

TL;DR

• Federal rule: Most bonuses/commissions are “supplemental wages.” When paid separately, employers may withhold a 22% flat federal rate (37% on supplemental wages exceeding $1M in the year).
• Aggregate method: If your employer combines bonus with a regular paycheck, federal withholding uses your marginal bracket via the normal payroll tables, not the 22% flat.
• FICA still applies: 6.2% Social Security (up to the annual wage base) + 1.45% Medicare (plus 0.9% Additional Medicare for high earners).
• States differ: Some have no income tax; some use a flat supplemental rate; others apply regular state tables (aggregate). Local city/county taxes may also apply.
• Modeled take-home (no state/local tax, below SS wage base, paid separately):
  • $5,000 bonus: ≈ $3,515 net after 22% federal + 7.65% FICA
  • $10,000 bonus: ≈ $7,030 net
  • $25,000 bonus: ≈ $17,575 net
• See your exact numbers: Use the Bonus Tax Estimator to model your state, local, and Social Security cap situation.

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1) What counts as a “bonus” or “supplemental wage”?

“Supplemental wages” are payments to employees that are not regular base pay. Common examples:

• Discretionary and nondiscretionary bonuses (sign-on, performance, retention)
• Commissions
• Overtime and shift differentials when paid as a separate lump
• Back pay, retro pay, severance
• Unused PTO payouts and certain awards

Employers can process these either with your normal paycheck (aggregate method) or separately (percentage method)—and that choice changes how much tax is withheld on payday.

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2) Two federal withholding methods: Aggregate vs Percentage

A) The Percentage Method (flat 22%)

When supplemental wages are paid separately from regular wages, many employers use the federal percentage method:

• 22% flat federal withholding on supplemental wages (up to a cumulative $1,000,000 in supplemental wages for the year).
• 37% applies only to the portion of supplemental wages that exceeds $1,000,000 within the calendar year.
• FICA (Social Security + Medicare) still applies if you haven’t maxed the Social Security wage base yet.
• State/local withholding follows state rules (flat supplemental rate if your state has one, or regular tables).

Pros: Simple and predictable; you see a clean 22% federal line on the bonus.
Cons: If your actual marginal rate is lower than 22%, you might be over-withheld today (refunded at tax filing). If your marginal rate is higher, you may be under-withheld.

B) The Aggregate Method (add to regular wages)

If the employer combines your bonus with a normal paycheck, payroll treats the total like one big pay. Federal withholding is computed using the regular wage tables based on your W-4, filing status, and pay frequency.

Pros: Withholding tracks your actual bracket more closely.
Cons: On a big bonus week, your withholding can jump, because the tables assume you earn that inflated amount every period, temporarily pushing you into higher brackets (leading to heavy withholding that may be partly refunded later).

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3) FICA, Additional Medicare, and Social Security wage base

• Social Security (OASDI): 6.2% from the employee, matched by the employer, applied only up to the annual wage base (the cap adjusts each year). If your year-to-date wages are below the cap, your bonus is subject to 6.2%. Once you exceed the cap, no more OASDI for the year.
• Medicare: 1.45% from the employee (no cap).
• Additional Medicare: 0.9% on wages above the annual threshold ($200k single / $250k MFJ / $125k MFS), employee only (no employer match). Employers must start the extra 0.9% withholding once your wages with that employer cross $200k, regardless of your filing status.

Key takeaway: Your Social Security YTD status heavily changes the net you see on a large bonus. If you’ve already maxed OASDI, your bonus nets higher because you skip the 6.2%.

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4) State and local taxes on bonuses

States fall into three broad buckets:

1. No state income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming (plus New Hampshire taxes interest/dividends, not wages).
2. Flat state supplemental rate: Many states set a specific flat rate for supplemental wages (e.g., “withhold 5% on bonuses”).
3. Use regular state tables (aggregate): Some states require withholding on bonuses using the normal state wage calculation, similar to the federal aggregate method.

Local taxes (cities/counties/school districts) can apply in places like New York City, Philadelphia, some Ohio localities, Detroit (MI), and others. Your employer typically withholds these automatically if your worksite or residence is within a taxed locality.

Important: State/local withholding is not your final tax—it’s a prepayment. Your true tax is calculated when you file your return. Over-withholding today can become a refund, and under-withholding can create a balance due (or reduce your refund).

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5) When does the 37% federal rate kick in?

The 37% federal percentage method applies only to the portion of your year-to-date supplemental wages that exceed $1,000,000.
Example: You’ve already received $990,000 of supplemental wages this year. Your next bonus is $50,000, paid separately under the percentage method:

• First $10,000 (to hit $1,000,000): 22% federal withholding
• Remaining $40,000 (over $1M): 37% federal withholding

FICA and state/local rules still apply.

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6) Modeling your bonus: clean baselines

Below are transparent, repeatable baselines you can adjust in our Bonus Tax Estimator widget.

Baseline assumptions (for first-pass estimates)

• Your employer pays the bonus separately (percentage method).
• You are below the Social Security wage cap for the year (so OASDI applies).
• Your wages are below the Additional Medicare threshold (so no 0.9%).
• You do not have local taxes.
• You do not have pre-tax deductions taken from the bonus (some employers still apply 401(k)/HSA to bonuses; many do not—ask HR/payroll).

Under those assumptions, the federal + FICA only picture is:

Bonus	Federal (22%)	Social Security (6.2%)	Medicare (1.45%)	Net (no state/local)
$5,000	$1,100	$310	$72.50	$3,517.50
$10,000	$2,200	$620	$145.00	$7,035.00
$25,000	$5,500	$1,550	$362.50	$17,587.50

If you’ve maxed Social Security already, add back 6.2% of the bonus to the net above.
If you cross the Additional Medicare threshold, subtract 0.9% on the portion above it.

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7) How the aggregate method changes your numbers

If your employer combines the bonus with a regular paycheck:

1. Payroll computes tax as if that larger amount were your every-period pay.
2. Your marginal bracket can jump for that pay run, increasing federal and state withholding.
3. Once annualized, your true tax may be lower than what was withheld in the bonus check, leading to a refund at filing.

Rule of thumb: Aggregate method often withholds more on payout day than the percentage method does for mid-bracket earners. High-bracket earners may prefer aggregate to avoid under-withholding.

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8) State modeling for $5k, $10k, $25k bonuses

Because states treat supplemental wages differently, your state take-home depends on which bucket your state is in. Use the following framework to get close quickly, then run exact numbers in the Bonus Tax Estimator.

Bucket A: No state income tax on wages

AK, FL, NV, SD, TN, TX, WA, WY
Method: Add $0 for state income tax (still consider local taxes where applicable—rare in these states for wage tax).
Estimates (federal + FICA only) are the baseline table above:

• $5,000: ≈ $3,517.50
• $10,000: ≈ $7,035.00
• $25,000: ≈ $17,587.50

Bucket B: Flat state supplemental rate

Many states specify a flat withholding on supplemental wages (e.g., “withhold 5%”).
Method: Take the baseline net and subtract (State Flat % × Bonus).
Illustration: If your state’s flat is 5%, then:

• $5,000 bonus: subtract $250 → ≈ $3,267.50
• $10,000 bonus: subtract $500 → ≈ $6,535.00
• $25,000 bonus: subtract $1,250 → ≈ $16,337.50

Your state’s rate can be higher or lower than 5%. Plug in your state’s actual flat rate in the estimator for precise results.

Bucket C: Aggregate using regular state tables

Some states do not have a special flat rate and require standard state wage calculations.
Method: Your state withholding depends on your state bracket and pay frequency. The practical way to estimate is:

1. annualize your combined pay, 2) find the marginal state rate on that annualized amount, 3) back into a one-check withholding approximation.
   Shortcut: Use the Bonus Tax Estimator with aggregate toggled on and your pay frequency (weekly/biweekly/monthly).

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9) Worked examples by state (mid-income employee)

Assumptions shared across examples:

• Single filer, no local wage tax, percentage method (paid separately), OASDI applies, no Additional Medicare, no pre-tax deductions.
• Federal = 22%; FICA = 7.65%.
• State handling as noted per example.
• These are withholding estimates, not final tax.

Use these as directional guides. Your employer’s method, local taxes, YTD Social Security, and W-4 can change the outcome.

Texas (TX) — No state income tax

• $5,000: ≈ $3,517.50
• $10,000: ≈ $7,035.00
• $25,000: ≈ $17,587.50

Florida (FL) — No state income tax

Same as Texas under baseline assumptions.

Washington (WA) — No state wage tax

Same as Texas under baseline assumptions.

California (CA) — State supplemental method (illustrative)

California applies its own withholding approach for supplemental wages. If paid separately, expect a state supplemental percentage to apply. For illustration, suppose a 10.23% state supplemental withholding is used for bonuses paid separately (your actual employer rate may differ based on CA’s current tables/type of supplemental pay).

• $5,000: Baseline $3,517.50 − $511.50 (10.23% of $5k) ≈ $3,006.00
• $10,000: $7,035.00 − $1,023.00 ≈ $6,012.00
• $25,000: $17,587.50 − $2,557.50 ≈ $15,030.00

Note: If your employer uses aggregate for CA, withholding may be higher or lower than the above on payday.

New York (NY) — State & NYC possibilities (illustrative)

New York State generally treats supplemental wages under state withholding rules; if you work/reside in NYC, a city tax can also apply. For a state-only illustration, assume a 9.62% supplemental withholding for modeling (actual employer practice can vary, especially with NYC/aggregate).

• $5,000: $3,517.50 − $481.00 ≈ $3,036.50
• $10,000: $7,035.00 − $962.00 ≈ $6,073.00
• $25,000: $17,587.50 − $2,405.00 ≈ $15,182.50

Add NYC if applicable using the widget’s local tax toggle.

Pennsylvania (PA) — Flat state wage tax (illustrative)

PA typically withholds a flat state income tax on wages. For illustration, assume 3.07% applied to the bonus:

• $5,000: $3,517.50 − $153.50 ≈ $3,364.00
• $10,000: $7,035.00 − $307.00 ≈ $6,728.00
• $25,000: $17,587.50 − $767.50 ≈ $16,820.00

Certain local Earned Income Taxes may apply in PA—toggle in the estimator.

Illinois (IL) — Flat state income tax (illustrative)

Assume a 4.95% state rate applied to supplemental wages:

• $5,000: $3,517.50 − $247.50 ≈ $3,270.00
• $10,000: $7,035.00 − $495.00 ≈ $6,540.00
• $25,000: $17,587.50 − $1,237.50 ≈ $16,350.00

Massachusetts (MA) — Flat state income tax (illustrative)

Assume 5% applied to the bonus:

• $5,000: $3,517.50 − $250.00 ≈ $3,267.50
• $10,000: $7,035.00 − $500.00 ≈ $6,535.00
• $25,000: $17,587.50 − $1,250.00 ≈ $16,337.50

North Carolina (NC) — Flat state income tax (illustrative)

Assume 4.5% for modeling:

• $5,000: $3,517.50 − $225.00 ≈ $3,292.50
• $10,000: $7,035.00 − $450.00 ≈ $6,585.00
• $25,000: $17,587.50 − $1,125.00 ≈ $16,462.50

Georgia (GA) — State supplemental possible (illustrative)

Assume a 5.75% state cut for modeling:

• $5,000: $3,517.50 − $287.50 ≈ $3,230.00
• $10,000: $7,035.00 − $575.00 ≈ $6,460.00
• $25,000: $17,587.50 − $1,437.50 ≈ $16,150.00

Arizona (AZ) — State supplemental (illustrative)

Assume 5.1% on supplemental wages:

• $5,000: $3,517.50 − $255.00 ≈ $3,262.50
• $10,000: $7,035.00 − $510.00 ≈ $6,525.00
• $25,000: $17,587.50 − $1,275.00 ≈ $16,312.50

For all other states: pick your state in the Bonus Tax Estimator and select Percentage or Aggregate to mirror your employer’s method. Add any local tax if applicable.

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10) Percentage vs Aggregate: Which is better for you?

There’s no universal “best” method—it depends on your cash-flow preference and tax profile.

Percentage method may be better if:

• You want a clean 22% federal withholding figure on bonus day (plus FICA, state/local).
• Your marginal federal rate is at or below 22% for the year; you want to avoid the surprise of aggregate tables.
• You have already maxed Social Security, making the bonus more take-home friendly.

Aggregate method may be better if:

• Your marginal rate is well above 22%; you’d prefer withholding that tracks your true liability more closely.
• You want to avoid a large balance due in April because the 22% flat would under-withhold relative to your bracket.
• Your state requires aggregate or your employer’s payroll policy mandates it.

Tip: Your employer chooses the payment method. You can politely ask payroll which method they’ll use for your bonus/commission so you can plan.

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11) Common edge cases (and how to model them)

1. You’re near the Social Security cap
   • In the estimator, toggle “OASDI already maxed”. This will remove the 6.2% from your bonus withholding.
2. You’ll cross Additional Medicare with this bonus
   • Turn on “Additional Medicare 0.9% applies” and enter the portion above the threshold.
3. You contribute to 401(k)/HSA on bonuses
   • Some employers allow or require pre-tax deductions on supplemental pay. Enable pre-tax deductions and set the percentage/amount to see the impact.
4. Local wage taxes
   • Enter your city/county or toggle local withholding with a specific percentage if your locality runs a wage tax (e.g., NYC, Philadelphia, some OH cities).
5. Multiple bonuses in one year
   • If paid separately under the percentage method, the 22% applies until cumulative supplemental wages exceed $1,000,000; then 37% for the excess. The estimator supports YTD supplemental tracking to switch rates precisely.
6. Commissions paid every pay period
   • If commissions are always combined with base pay, choose aggregate, enter your typical period wages, and let the estimator annualize correctly.

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12) Practical planning moves

• Time the bonus vs. the Social Security cap. If you’re already at or near the OASDI limit, a year-end bonus nets more because 6.2% drops off after the cap.
• Adjust your W-4 for the pay period before a big aggregate-method bonus if needed (e.g., add an extra withholding amount for just that paycheck, or reduce it if your employer permits and your tax projection supports it).
• Earmark pre-tax savings. If your plan allows 401(k)/HSA deductions on bonuses and you want to save more pre-tax, set a one-time higher percentage the period your bonus hits.
• Mind the April outcome. If your marginal rate is above 22%, percentage-method bonuses can leave you under-withheld; consider a one-time additional withholding on the bonus check or a quarterly estimated tax payment.
• Document local tax exposure. If you live in a locality with wage tax (or you split work across cities/states), verify with payroll how they determine which local rates to apply on supplemental pay.

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13) Quick reference: how to use the Bonus Tax Estimator

1. Choose your state and, if applicable, locality.
2. Select your employer’s method: Percentage (22%) or Aggregate.
3. Enter the bonus size ($5,000 / $10,000 / $25,000 or custom).
4. Toggle OASDI cap reached or Additional Medicare if applicable.
5. (Optional) Add pre-tax deductions and any extra withholding you want your employer to take.
6. Hit Calculate to see net-of-withholding take-home and a line-by-line breakdown (federal, Social Security, Medicare, state, local).

CTA: Open the Bonus Tax Estimator now and model your real check in seconds.

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14) State-by-state modeling notes (how our tool handles each)

To give accurate, compliant results, the estimator follows this logic:

• No tax states: Applies $0 state withholding (still allows local toggles if your locale taxes wages, e.g., certain city income taxes in non-tax states are rare; most users will leave locals off here).
• Flat supplemental states: Applies the official flat percentage to the bonus when Percentage method is chosen; allows Aggregate as a switch if your employer combines the pay and the state permits.
• Aggregate-only states: Uses the regular state tables. The tool annualizes your combined pay for that period and computes a single-check withholding approximation.
• Special states (e.g., additional surtaxes or credits): Exposes a “state adjustments” toggle for unusual add-ons so you can include them when they apply.

The result is a per-state computation that mirrors how real payroll systems withhold, while keeping the inputs short and understandable.

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15) FAQs:

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16) Putting it all together

• For most employees receiving a separate $5k–$25k bonus, expect:
  • Federal: 22% withholding (unless you exceed $1M of supplemental wages)
  • FICA: 7.65% if you haven’t maxed OASDI
  • State/local: depends on where you live/work and the employer’s method
• Your net can vary by hundreds depending on:
  • State and local rules
  • Method (percentage vs aggregate)
  • Social Security YTD status
  • Pre-tax deductions and Additional Medicare
• The surest way to match your actual check: run your details through the Bonus Tax Estimator, choosing the same method your employer will use.

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17) Final Step

Use the Bonus Tax Estimator widget below. Select your state, locality (if any), choose your employer’s method (Percentage or Aggregate), input your bonus size ($5k, $10k, $25k, or custom), and toggle OASDI/Medicare and pre-tax switches as needed. You’ll get a clean take-home estimate with line-by-line withholding so you can plan your cash flow and avoid April surprises.

Bonus & Commission Tax Estimator 2025–2026