From Played to Paid – Week 4

Why Bonuses Feel Like a Scam - How Taxation Works

Bonuses are supposed to feel exciting.

Like a reward.

Like recognition.

Like a treat yo’ self moment.

But if you’ve ever checked your bonus pay and immediately asked, “Wait, where did the rest of it go?”—you are not alone.

In fact, one of the most common complaints about bonuses is that they feel like they’re taxed more than regular pay.

So what’s actually happening here? And is your employer really shortchanging you?

Let’s break it down.

How Bonus Pay is Taxed

The Short Version = 22%

Bonuses are taxed differently than your normal paycheck—but not more. It just feels that way because of the method most employers use to calculate the withholding: flat rate taxation.

In 2025, the IRS flat rate for supplemental income (like bonuses, commissions, and awards) is 22%. That means your employer likely withholds 22% of your bonus up front for federal taxes—regardless of how much you normally make. Compare that to your regular paycheck, which may have lower withholding if your income is modest, and suddenly that bonus doesn’t look so “extra.”

Why It Feels Like a Ripoff (Even Though It’s Not)

Let’s say your regular paycheck is $1,000 and your typical federal tax withholding is $120.

Then you get a $1,000 bonus—and $220 is withheld for federal taxes.

You just saw $100 more come out of the same amount of money.

That’s a psychological gut-punch—even though you’re probably not losing that money for good.

Come tax season, your total tax liability will be reconciled. If too much was withheld, you’ll get it back as a refund. But in the moment? Ouch.

The Two Ways Bonuses Can Be Taxed

Method 1 - Flat Rate

Most employers use Method 1

The Flat Rate Method

• Withhold 22% federal tax off the top

• Easy, predictable, and safe for employers

• May result in higher-than-needed withholding for some workers

Some employers use Method 2

The Aggregate Method

• Combine your bonus with your regular wages

• Use your Form W-4 to calculate withholding on the total

• Can be more accurate—but also more confusing

If you really want to know which method your employer used, check your pay stub or ask payroll.

How to Keep More of Your Bonus (Legally)

There are a few ways to maximize your bonus pay:

1. Adjust your W-4 withholding

   If you consistently get big refunds, it might mean too much is being withheld—especially on bonuses.

   

2. Time your bonus for a lower-tax season

   Easier said than done, but if you’re expecting to make less this year, you might be in a lower bracket.

   

3. Contribute to pre-tax benefits

   Retirement accounts (like a 401(k)) or an HSA can reduce your taxable income.

   

4. Treat it as income, not free money

   We know, not fun. But planning ahead can ease the sting.

So… Are Bonuses Still Worth It? Yes!

Even if the withholding makes them feel like a scam, you’re still walking away with more money than you had. Plus, they’re a tangible sign that your work is being rewarded.

Just go into it with eyes wide open—and maybe set a reminder to revisit your W-4 if your paycheck surprises keep piling up.

Bonuses aren’t the problem. Confusing tax rules and unclear communication about those bonuses? Now we’re getting warmer.

If you’ve ever had a “Wait, what happened to my bonus?!” moment, you’re not crazy—it’s just the system doing what it does best: being complicated.

But you’re getting wiser every week. And next time you see a bonus in your future, you’ll know exactly what to expect—and what to do.

Until next week, may your net pay be mighty and your bonus math make sense. 🧾💪