Bonus Tax Rate by State 2026: How Much of Your Bonus Do You Keep?

You've earned a bonus — but how much of it do you actually keep? The answer depends on federal supplemental withholding (22% or 37%), your state's bonus withholding method, and your total year income. This guide explains how bonuses are taxed both federally and by state, which states take the most from a bonus, and what you can expect to receive after all taxes.

Federal Bonus Tax: Withholding vs Actual Tax

The federal government taxes bonuses in two ways depending on how your employer handles it:

Method 1: Flat Rate Withholding (Most Common)

Employers withhold 22% on supplemental wages (bonuses, commissions, prizes) up to $1M total supplemental wages per year. Above $1M in supplemental wages: 37% flat. This is just withholding — your final tax is determined when you file your annual return based on your total income and marginal bracket.

Method 2: Aggregate Withholding

Some employers add the bonus to your most recent regular paycheck, calculate withholding on the combined amount, then subtract what was already withheld. This can result in higher withholding if the combined amount pushes you into a higher bracket for that pay period.

What You Actually Owe

If your federal marginal rate is 24% and your employer withheld 22%, you'll owe an additional 2% when you file. If your marginal rate is 32% and 22% was withheld, you owe 10% more at filing. For those in the 10–22% bracket, the 22% withholding may actually exceed your real liability — resulting in a refund.

State Bonus Withholding Rates

State bonus tax withholding varies by state:

States with Flat Supplemental Rates

• California: 10.23% flat withholding on bonuses (one of the highest in the US)
• Georgia: 4.99%
• North Carolina: 4.25% flat
• South Carolina: 3% flat
• Illinois: 4.95% flat (matches regular rate)
• Colorado: 4.40% flat
• Arizona: 2.5% (same as regular)

States Using Regular Withholding Tables

Most states apply the same withholding method to bonuses as to regular wages — annualising the bonus and withholding at the resulting rate. This typically results in high withholding for large bonuses (since annualising a bonus makes it look like very high annual income in the withholding calculation).

States with No Bonus Tax

• Florida, Texas, Nevada, Wyoming, South Dakota, Alaska: 0% state tax on bonuses (no income tax)
• Tennessee, New Hampshire: 0% on wage/bonus income

California + Federal Combined Withholding

A California high earner receiving a $100,000 bonus: 22% federal + 10.23% California = 32.23% withheld. If their federal marginal rate is 37% and California marginal rate is 13.3%: actual tax is 50.3% — roughly $50,300 owed on the $100,000 bonus, with $32,230 withheld and ~$18,000 owed at filing.

Strategies to Reduce Bonus Tax

You cannot change the tax rate on a bonus — it's ordinary income taxed at your marginal rate. However, you can:

• Contribute to 401(k): Bonus contributions to a traditional 401(k) reduce federal and most state taxable income. 2026 limit: $24,500 ($32,500 if 50+). A $24,500 bonus contribution saves: 22–37% federal + state rate in current year
• Contribute to HSA: If you have a high-deductible health plan, contribute up to $4,400 (single) / $8,750 (family) to your HSA
• Negotiate timing: If possible, negotiate to receive the bonus in January rather than December to defer income into the next tax year (useful if you expect lower income next year)
• Defer to non-qualified deferred compensation: If your employer offers NQDC, deferring a bonus to a later year (retirement, leave of employment) can shift income to a lower-bracket year
• Year-end tax loss harvesting: If you have investment losses, realise them in the same year as a large bonus to offset capital gains (though this doesn't directly offset ordinary bonus income, it reduces overall tax impact)