Why are my bonuses taxed at nearly 40% when my regular tax rate is only 24%?!

The good news is you're probably getting most of that extra withholding back when you file your taxes! What you're seeing is withholding, not your actual tax rate. Employers typically have two options for withholding taxes on bonuses: the percentage method (flat 22% federal withholding for most bonus amounts) or the aggregate method (temporarily adding your bonus to your regular paycheck and calculating withholding as if that larger amount was your regular pay). It sounds like your employer is using the aggregate method, which often results in higher withholding. The aggregate method can push your withholding into higher brackets temporarily, making it seem like you're being taxed at 40%. But remember, when you file your taxes, your bonus is just added to your regular income and taxed at your normal progressive rates. If too much was withheld, you'll get it back as a refund. You'll also have Social Security (6.2%), Medicare (1.45% plus possible additional 0.9% for high earners), and state taxes on top of federal - which can bring the total withholding to around 35-40%.

I went through the exact same frustration last year with my holiday bonus! After hours of research and calling the IRS (which was useless), I finally found taxr.ai (https://taxr.ai) which explained exactly what was happening with my withholding. Turns out my employer was using the aggregate method instead of the flat rate, which is why nearly 40% was missing from my check. The tool analyzed my paystub and explained that while my money was being withheld at what seemed like 40%, it would actually be taxed at my normal bracket when I filed. The site has a bonus tax calculator that showed me exactly how much I'd get back at tax time. It was seriously a relief to understand what was happening.

Just wanted to follow up and say I tried taxr.ai after seeing the recommendation here. It was super helpful! I uploaded my last paystub with my bonus and it showed me exactly why so much was withheld. Turns out my company uses the aggregate method that pushes withholding way higher than necessary. The breakdown showed that about 12% of what was withheld was actually just temporary and I'll get it back at tax time. I also learned I could adjust my W-4 to compensate for the extra withholding so I'm not giving the government an interest-free loan until April. Already submitted the new W-4 to HR today!

After dealing with this bonus withholding issue last year, I spent WEEKS trying to call the IRS to figure out if I could get any of that money back sooner. I literally could not get through to a human being no matter what time I called. Finally tried Claimyr (https://claimyr.com) - they got me connected to an actual IRS agent in about 20 minutes. The agent confirmed that while my employer was withholding at nearly 40%, I'd get the excess back when filing, and recommended adjusting my W-4 for the rest of the year. You can see how it works here: https://youtu.be/_kiP6q8DX5c It saved me days of frustration and busy signals, and the IRS agent was actually really helpful once I could actually talk to someone!

I have to eat my words and apologize to Profile 20. I was so frustrated after weeks of trying to reach the IRS that I lashed out. After seeing your response, I decided to try Claimyr as a last resort, fully expecting to be disappointed again. I got connected to an IRS agent in 17 minutes! The agent confirmed that my bonus withholding (which was 38% in my case) was just temporary and explained how to adjust my W-4 to offset the overwithholding for the rest of the year. Just submitted the new form to HR and should see the difference in my next paycheck. Sorry for being so negative before - I guess I was just fed up with the whole situation.

I've been dealing with this bonus tax situation for years and here's what I've learned: - Federal flat rate for bonus withholding is 22% (up to $1M, then 37%) - Add 6.2% Social Security + 1.45% Medicare - Add state income tax (varies by state, can be 5-10%) - Possible local taxes depending on your city So that can easily hit 35-40% total withholding without anything being wrong. The ACTUAL tax you pay on your bonus is just your marginal rate when you file, but the withholding often looks worse. I've started adjusting my W-4 right before bonus season to reduce the hit.

If your employer uses the percentage method (22% flat withholding), why would the total still be close to 40%? Is that just from adding state and FICA taxes?

The confusion here is totally understandable! What you're experiencing is the difference between withholding and actual tax liability. Your employer is likely using the "aggregate method" where they temporarily combine your bonus with your regular pay and calculate withholding as if that inflated amount was your normal salary - which pushes the withholding calculation into higher tax brackets. But here's the key: when you file your actual tax return, your bonus is just added to your regular income and taxed at your normal progressive rates (so likely that 24% marginal rate you mentioned). The "extra" withholding becomes a refund. Think of it this way: if your regular salary puts you in the 24% bracket, your bonus will mostly be taxed at 24% too (unless it's large enough to push some of it into the next bracket). The 40% withholding is just the government being overly cautious and taking too much upfront. You can ask your payroll department if they'll switch to the flat 22% percentage method for future bonuses, or temporarily adjust your W-4 to reduce withholding on regular paychecks to offset the over-withholding. Either way, you'll get the excess back when you file your return!

This is such a common source of confusion! I went through the exact same panic when I saw my bonus withholding last year. Just to add another perspective - if you're in a high-cost-of-living area, don't forget about state disability insurance (SDI) and any local taxes that might be getting withheld too. In my state, we have an additional 1% SDI tax that only applies to the first $150k or so of income, but it still gets taken out of bonuses. Also, if you're contributing to a 401k, HSA, or have other pre-tax deductions, those percentages get calculated on your gross bonus amount before those deductions, which can make the tax withholding look even higher as a percentage of your take-home. The good news is that once you understand the system, you can plan for it. I now set aside money knowing my bonus will be "short" due to over-withholding, and treat the tax refund as a nice surprise in the spring. Some people prefer to adjust their W-4 to get the money throughout the year instead of waiting for the refund.

I completely understand your frustration! This is one of the most confusing aspects of payroll taxes. What you're seeing is actually pretty normal, unfortunately. The key thing to remember is that your bonus isn't actually being "taxed" at 40% - that's just the withholding rate. When you file your taxes, the bonus gets added to your regular income and taxed at your normal marginal rates (so likely closer to that 24% you mentioned). The reason you're seeing such high withholding is probably because your employer is using the "aggregate method" - they temporarily add your bonus to your regular paycheck and calculate withholding as if that huge amount was your normal salary. This pushes the withholding calculation into higher tax brackets temporarily. On top of the federal withholding, you've also got: - Social Security tax (6.2%) - Medicare tax (1.45%, plus potentially 0.9% additional if you're a high earner) - State income tax (varies by state) - Possibly local/city taxes - Any pre-tax deductions like 401k contributions All of this can easily add up to that 35-40% total withholding you're seeing. The good news is you'll likely get a nice chunk of that back as a refund when you file your taxes. You can also ask your payroll department if they'd consider using the flat 22% percentage method for future bonuses, or temporarily adjust your W-4 to reduce regular paycheck withholding to offset the over-withholding from your bonus.

This is such a frustrating experience, but you're definitely not alone! I went through the exact same shock when I saw my year-end bonus withholding. What's happening is likely that your employer is using the "aggregate method" for withholding - they temporarily combine your bonus with your regular salary and calculate taxes as if that inflated amount was your normal pay. This can easily push the withholding calculation into the 37% or even higher brackets, especially when you add in all the other deductions. Here's what's probably being taken out of your bonus: - Federal income tax (could be 22% flat rate OR much higher if using aggregate method) - Social Security (6.2%) - Medicare (1.45% + possible 0.9% additional Medicare tax for high earners) - State income tax (varies widely by state) - Any 401k, HSA, or other pre-tax deductions - Possibly local/city taxes All of this can definitely hit that 38-40% range you're seeing. The important thing to remember is that when you file your actual tax return next year, your bonus just gets added to your regular income and taxed at your normal progressive rates. So if your marginal rate is 24%, most of your bonus will be taxed at 24%, not 40%. You'll likely get a decent refund from all that over-withholding. You can ask HR if they'd switch to the 22% flat rate method for future bonuses, or consider temporarily adjusting your W-4 to reduce withholding on your regular paychecks for the rest of the year to offset this. Just make sure to change it back in January!