{"id":188,"date":"2017-12-29T14:35:42","date_gmt":"2017-12-29T14:35:42","guid":{"rendered":"https:\/\/www.e-file.com\/info\/?p=188"},"modified":"2026-07-16T19:22:24","modified_gmt":"2026-07-16T19:22:24","slug":"bonus-tax-treatment","status":"publish","type":"post","link":"https:\/\/www.e-file.com\/info\/bonus-tax-treatment\/","title":{"rendered":"Christmas Bonus vs. Year-End Bonus, Is there a taxable difference?"},"content":{"rendered":"

The IRS classifies bonuses, including holiday bonuses, year-end bonuses, signing bonuses, and performance awards, as supplemental wages<\/b>. That puts them in the same category as commissions, overtime pay, and severance. <\/span>All of it is taxable income, subject to federal income tax, Social Security, and Medicare.<\/b><\/p>\n

Your bonus will appear on your W-2 at year-end, combined with your regular wages. If you believe compensation was omitted from your Form W-2, contact your employer.<\/span><\/p>\n

\"The<\/p>\n

The Federal Bonus Tax Rate in 2026<\/h2>\n

For 2026, the IRS requires employers to <\/span>withhold federal income tax from bonuses at a flat rate of 22% <\/b>on amounts up to $1 million paid in a calendar year. Bonuses above $1 million are subject to mandatory withholding at 37% on the amount over that threshold.<\/span><\/p>\n

The <\/span>flat rate<\/b> applies when the bonus is paid on a separate check from your regular wages. On top of federal income tax, you’ll also see Social Security and Medicare deductions, though the exact combined withholding varies by employee. The flat-rate (percentage) withholding is the simpler method, and the one most employees encounter.<\/span><\/p>\n

The other IRS-approved method to withhold taxes from your bonus is the <\/span>aggregate method<\/b>. This is when your employer adds your bonus to your most recent regular paycheck, calculates withholding on the combined total (using the <\/span>IRS wage bracket tables<\/span><\/a>), and then subtracts what was already withheld from the regular pay.\u00a0<\/span><\/p>\n

State income tax on bonuses varies. Some states match the federal supplemental rate; others apply their own flat rate or standard withholding tables. Check with your state tax agency for the applicable rate.<\/span><\/p>\n

Are Holiday Bonuses and Year-End Bonuses Taxed Differently?<\/h2>\n

From the IRS’s perspective, a <\/span>Christmas bonus<\/span><\/a> and a year-end performance bonus are taxed identically. Both are supplemental wages. Both are subject to the same 22% flat withholding rate (if paid separately) and the same <\/span>FICA taxes<\/span><\/a>.<\/span><\/p>\n

What About Non-Cash Holiday Gifts?<\/h2>\n

Not every holiday gift from your employer is taxable. The IRS allows employers to exclude certain low-value, infrequent, non-cash gifts from your taxable income under the <\/span>de minimis fringe benefit<\/span><\/a> rule.<\/span><\/p>\n

What qualifies: A holiday ham, a turkey, flowers, a fruit basket, or similar gifts of modest value that are provided infrequently. The IRS doesn’t publish a specific dollar limit, but gifts exceeding roughly $100 in value are unlikely to qualify.<\/span><\/p>\n

If you’re an employer, make sure employees know whether they’re receiving a de minimis gift or a taxable bonus. <\/span><\/p>\n

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Frequently Asked Questions<\/h2>\n\n\n\n
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