How Supplemental Bonus Withholding Works in 2026
The IRS classifies any wage payment made outside your standard regular paycheck as a supplemental wage. This includes year-end performance bonuses, signing bonuses, severance payouts, and accumulated paid time off (PTO) cash-outs.
The Two Methods Employers Use:
- Percentage Method (Most Common): Employers withhold a flat 22% federal tax on all bonus amounts up to $1 million (and 37% on amounts exceeding $1 million).
- Aggregate Method: Your employer combines your regular paycheck with your bonus, calculates taxes as if that single check represents your normal annual pay bracket, and withholds accordingly. This often pushes you into a temporary higher tax bracket on that specific pay stub.
State Bonus Taxes:
In zero-tax states like Texas and Florida, $0 is deducted for state tax. However, states like California enforce a mandatory flat 10.23% supplemental withholding, and New York enforces up to 11.7% on bonuses.