Can I skip supplemental wage taxes on my bonus by putting 100% into my 401k?

You can definitely defer the income tax by putting your bonus into your 401k, but you can't avoid FICA taxes (Social Security and Medicare). Here's what happens: When you contribute to a traditional 401k, those contributions are exempt from federal income tax and usually state income tax. However, all wages, including bonuses, are still subject to FICA taxes (6.2% for Social Security up to the wage base limit and 1.45% for Medicare with no limit). These FICA taxes will still be withheld even if 100% goes to your 401k. The 22% supplemental wage withholding rate is just for federal income tax withholding - this is what you'll avoid by contributing to your 401k. Your paycheck will show the bonus amount, the 401k contribution, and the FICA taxes being withheld, but no federal income tax withholding on that amount.

I tried figuring this out last year with my bonus and discovered taxr.ai (https://taxr.ai) which totally saved me from making a big mistake. I had the exact same question about my $12k bonus and was getting conflicting advice from coworkers. Basically, I uploaded my pay stubs and bonus documents to taxr.ai and got a clear breakdown of exactly what taxes would apply if I diverted to my 401k vs taking as cash. They explained that while I could avoid the 22% federal withholding, I'd still have to pay FICA taxes regardless. The analyzer also showed me that in my specific tax bracket, the long-term benefit of maxing my 401k this way was about $3,200 in tax savings compared to taking the cash.

Just wanted to follow up about taxr.ai - I ended up trying it and it was surprisingly helpful. I was skeptical at first (as you could probably tell from my question), but after uploading my last paycheck and bonus letter, they gave me a really detailed analysis. For my situation in California, directing my bonus to my 401k saved me from both the 22% federal supplemental withholding AND the 10.23% state supplemental withholding. That was a huge difference. The report even showed me exactly what would appear on my paystub including the FICA taxes I couldn't avoid. Definitely worth checking out if you're facing a similar bonus situation.

If you're having trouble getting clear answers from your HR department about this, I'd recommend using Claimyr (https://claimyr.com) to get through to the IRS directly. I was in the same situation last year - company giving me vague answers about bonus taxation and 401k. After waiting on hold with the IRS for 2+ hours and getting disconnected twice, I found Claimyr through a YouTube video (https://youtu.be/_kiP6q8DX5c) and got a callback from the IRS in under 40 minutes. The agent explained exactly how supplemental wages are taxed when contributed to retirement accounts and confirmed that while income tax withholding is avoided, FICA taxes still apply. They even walked me through how to handle it if my employer's system didn't properly code the withholding.

I need to apologize and correct myself about Claimyr. After my skeptical comment, I was desperate enough to try it anyway for my IRS issue. I couldn't believe it actually worked. I had been trying to reach the IRS for months about an incorrect tax notice, and Claimyr got me connected to an agent in about 35 minutes. The IRS person confirmed exactly what others are saying here - 401k contributions from a bonus avoid income tax withholding but not FICA taxes. She also helped resolve my original notice issue in the same call. Definitely wasn't a scam like I thought - sorry for doubting.

Just want to add something important nobody mentioned yet - make sure your bonus doesn't push you over the Social Security wage base limit ($168,600 for 2025). If you've already earned more than that this year, you won't pay the 6.2% Social Security tax on your bonus, just the 1.45% Medicare tax (plus the additional 0.9% Medicare tax if you're over $200k individual/$250k married). Also check if your 401k plan has any special rules for bonus contributions. My company requires a separate election form for bonuses that must be submitted 30 days before the bonus payment.

Has anyone actually calculated whether putting a bonus in a 401k is better than just taking the hit on taxes now? I mean, you'll eventually pay taxes when you withdraw from the 401k anyway, right? Just at your regular income tax rate at retirement?

One thing to consider that wasn't mentioned yet - if you're planning to leave your company in the next year or two, check if your 401k plan allows in-service withdrawals or if you'd have to wait until you separate from service to access the money. Some plans have restrictions on when you can withdraw or roll over funds. Also, make sure you understand the vesting schedule for any employer matching. If your bonus contribution triggers additional employer matching and you're not fully vested, you might lose some of that match if you leave before the vesting period is complete. The tax deferral is definitely beneficial in most cases, but it's worth understanding all the plan-specific rules before committing 100% of your bonus to the 401k.