Getting a bonus feels great until you see the deposit. A £5,000 or $5,000 bonus almost never lands in your account as £5,000 or $5,000, and the gap can be large enough to feel like a mistake. It usually is not a mistake. In most cases your bonus is taxed the same way as the rest of your income, but the way it is withheld at the moment of payment can make the deduction look far heavier than your true tax bill. Understanding that difference is the key to knowing what you will actually keep.
This guide explains the mechanism behind bonus taxation, walks through labelled US and UK examples, and shows why the amount taken at payday is often not the final word. Because rules and thresholds differ by country and change over time, treat every figure here as illustrative and confirm the current numbers for your own situation.
There is no special "bonus tax rate"
The most common myth is that bonuses are taxed at a punitive, higher rate than ordinary earnings. That is not how it works. A bonus is treated as ordinary taxable income and is taxed at your normal rates. What differs is withholding — the amount your employer holds back and sends to the tax authority when the bonus is paid. Withholding is only an estimate of what you owe. Your actual tax liability is settled when you file a return (in the US) or across the tax year through the PAYE system (in the UK), and any over-collection can come back to you.
If your take-home bonus looks small, the culprit is usually one of three things: a flat withholding rate applied at payment, the bonus temporarily pushing you into a higher marginal band, or payroll software annualising a one-off payment. Each is explained below.
How bonuses are taxed in the United States
For US employees, a bonus is a type of "supplemental wage." Employers can withhold federal income tax on it in one of two ways:
- Flat-rate (percentage) method. If the bonus is identified separately from regular wages, the employer may withhold federal income tax at a flat 22%. Any supplemental wages above $1 million in a calendar year are withheld at 37%. (Source: IRS Publication 15, for use in 2026.)
- Aggregate method. The employer combines the bonus with a recent regular paycheck and withholds as if that larger amount were your normal pay, which can pull a lot more tax at the moment of payment.
Either way, the bonus is also subject to Social Security tax (6.2% up to the annual wage base), Medicare (1.45%, plus a 0.9% Additional Medicare surcharge above high-income thresholds), and any applicable state and local income tax.
The critical point: 22% is a withholding rate, not your tax rate. If your marginal federal rate is only 12%, too much was withheld and you recover the difference as a refund when you file. If your marginal rate is 32% or 35%, the flat 22% may under-withhold, and you could owe more at filing. The bonus itself did not change the tax you owe — only the timing and size of what was collected up front.
Illustrative US example
Illustrative only — assumes a single filer, separately paid bonus, flat method, 2026 figures. Suppose you receive a $10,000 bonus.
| Item | Rate | Amount withheld |
|---|---|---|
| Federal income tax (flat supplemental) | 22% | $2,200 |
| Social Security | 6.2% | $620 |
| Medicare | 1.45% | $145 |
| Total federal payroll withholding | 29.65% | $2,965 |
| Net bonus (before any state tax) | $7,035 |
If your actual marginal income-tax rate for the year turns out to be 12%, part of that $2,200 comes back to you at filing. State income tax, where it applies, would reduce the net further.
How bonuses are taxed in the United Kingdom
The UK has no separate bonus tax. A bonus runs through PAYE and is taxed at your marginal rate alongside your salary, and it is subject to National Insurance as well. For England, Wales and Northern Ireland in 2026/27, the bands are:
| Band | Taxable income (2026/27) | Income tax | Employee NI |
|---|---|---|---|
| Personal Allowance | Up to £12,570 | 0% | 0% up to £12,570 |
| Basic rate | £12,571 – £50,270 | 20% | 8% |
| Higher rate | £50,271 – £125,140 | 40% | 2% |
| Additional rate | Over £125,140 | 45% | 2% |
(Scotland sets its own income tax bands, so Scottish taxpayers face different rates. NI bands align to the same £12,570 and £50,270 thresholds.)
Two quirks make UK bonuses feel especially heavy:
- Marginal-rate stacking. A bonus sits on top of your salary, so it is taxed at your highest band. If your salary is already in the higher-rate band, the whole bonus is taxed at 40% plus 2% NI before you see it.
- PAYE month-based smoothing. PAYE often treats a one-off bonus as if you will earn that much every month, temporarily over-taxing the payment. Because PAYE is cumulative across the tax year, this usually self-corrects in later paychecks, so an unusually harsh single deduction is frequently recovered automatically.
There is also the "60% trap": once total income exceeds £100,000, the Personal Allowance is withdrawn by £1 for every £2 earned, disappearing entirely at £125,140. A bonus that crosses £100,000 can therefore be taxed at an effective marginal rate of around 60% within that band (2026/27 thresholds).
Illustrative UK example
Illustrative only — England/Wales/NI, higher-rate taxpayer, 2026/27 rates. Suppose your salary already exceeds £50,270 and you receive a £5,000 bonus. The whole bonus falls in the higher-rate band:
| Deduction | Rate | Amount |
|---|---|---|
| Income tax | 40% | £2,000 |
| National Insurance | 2% | £100 |
| Total deducted | 42% | £2,100 |
| Net bonus | £2,900 |
A basic-rate taxpayer whose bonus stays within the basic band would instead lose roughly 20% tax plus 8% NI — about 28% — keeping around £3,600 of the same £5,000. Student loan repayments, where they apply, would reduce take-home further.
Why the payday figure often overstates your real tax
Pulling the threads together, the deduction you see on a bonus payslip is a withholding estimate, not a final settlement:
- In the US, the flat 22% is a convention. Your true liability is reconciled on your annual return, so over-withholding returns as a refund and under-withholding becomes a balance due.
- In the UK, cumulative PAYE and month-based smoothing mean an unusually large one-off deduction often evens out over the remaining pay periods of the tax year.
If you want to see your whole-year picture rather than a single distorted payslip, model your salary plus bonus together. Our salary calculator lets you add a one-off payment and see estimated annual take-home, which is far more meaningful than the payday snapshot.
Ways to keep more of a bonus
- Pension contributions. Paying part or all of a bonus into a pension (a "bonus sacrifice" in the UK, or a 401(k) deferral in the US) can reduce the taxable amount and, in the UK, cut NI too.
- Timing. Where you have a say, taking a bonus in a year when your other income is lower can keep more of it in lower bands.
- Check your tax code or W-4. In the UK, verify your tax code after a large bonus so any smoothing correction flows through; in the US, adjust your W-4 if bonuses routinely leave you over- or under-withheld.
For the machinery behind these figures, see our guides on how income tax works, understanding tax brackets, tax deductions explained, and what take-home pay actually means.
Final thoughts
A bonus is not taxed by some special penalty rate — it is ordinary income that is simply withheld aggressively at the moment it is paid. In the US the flat 22% supplemental rate is reconciled on your tax return; in the UK cumulative PAYE usually corrects an over-harsh single deduction over the rest of the year. The real drivers of a smaller-than-expected bonus are marginal-rate stacking, flat withholding conventions, and payroll smoothing — not a hidden tax on success.
Tax rates, allowances and thresholds change from year to year and vary by country and region, and the figures in this guide are illustrative for the tax years stated. For decisions that matter to your finances, confirm the current rules for your jurisdiction and consider consulting a qualified tax professional or accountant.