Flat Rate Method

The flat rate method, also called the percentage method for supplemental wages, withholds federal income tax on a bonus or other supplemental pay at a flat 22%, no matter what your W-4 says. Supplemental pay over $1 million in a year is withheld at 37%.

An employer can use it only when the bonus is paid separately from regular wages, or listed as its own amount on the stub, and income tax was withheld from your regular pay this year or last. On a $5,000 bonus that is $1,100 of federal income tax, plus $382.50 for FICA and any state tax.

The 22% is a withholding rate, not your final tax. If your marginal tax rate is lower, the extra comes back at filing time, and if it is higher you owe the difference. The other option is the aggregate method. Run your own numbers in the bonus tax calculator and read whether bonuses are taxed differently.