Blog · · 3 min read
Your bonus is not a raise
Why a $40K bonus lands as about $28K, why April can take more, and a three-bucket way to decide where it goes before it arrives.
A bonus feels like a raise that arrived all at once. It isn't. It's taxed differently on the way in, it doesn't repeat on a schedule you control, and if nothing is decided before it lands, it gets absorbed into a few good months and disappears.
This post covers three things: what actually lands in your account, why April can ask for more, and a simple way to decide where it goes before it arrives.
What lands in your account
The IRS calls a bonus supplemental wages. Most employers withhold federal income tax on it at a flat 22%, whatever your W-4 says. Once your supplemental pay passes $1 million in a calendar year, the excess must be withheld at 37%. (IRS Publication 15)
On top of that:
- State tax. Most states withhold too, some at their own flat rate for bonuses. Our calculator uses a rough top rate per state at high incomes.
- Medicare, 1.45%. Plus another 0.9% on wages above $200,000 in the year.
- Social Security, 6.2%, until your wages for the year pass the wage base ($184,500 in 2026, per the SSA). If your bonus comes early in the year, this one usually applies.
- 401(k) deferrals, if your plan takes a percentage of bonus pay.
For a $40,000 bonus in New York at 22% federal, 6.85% state and 1.45% Medicare, that's about $27,880 before Social Security or any 401(k) deferral. If you're under the wage base, another $2,480 comes out.
Run your own numbers in the bonus take-home calculator.
Why April can ask for more
Withholding is a down payment, not the bill. If your top federal bracket is above 22%, the flat 22% leaves a gap that shows up when you file.
| Top federal bracket | Withheld on a $40K bonus | Federal tax owed on it | Gap in April |
|---|---|---|---|
| 24% | $8,800 | $9,600 | $800 |
| 32% | $8,800 | $12,800 | $4,000 |
| 35% | $8,800 | $14,000 | $5,200 |
The gap is the difference between your bracket and 22%, times the bonus. It's an estimate: deductions, credits and the rest of your withholding all move it. But the direction is reliable. At most six-figure salaries, a bonus is under-withheld.
Decide before it lands
Most bonuses don't get spent on anything specific. They get spent on everything, a little at a time, because no one decided otherwise. Deciding in advance takes ten minutes and three buckets.
- Cash cushion and near-term goals. Start with the April gap from the table above. Then whatever is due in the next year or two: the wedding, the down payment, the car you'll replace.
- Invest for later. A brokerage account, retirement accounts you haven't filled this year, extra mortgage principal. The point is that it's moved on purpose, the week the money arrives.
- Spend on purpose. A bonus that's 100% virtuous gets raided. Name the part you'll enjoy, and enjoy it without guilt.
The split matters less than making it before payday. 40/40/20 is a reasonable default. If April's gap is large, the first bucket gets bigger.
What a plan does that a calculator can't
A calculator answers one question once. The bonus is also a moment on a timeline: it arrives in a specific month, lands next to your rent and your card bill, and changes what you can afford in the six months after it.
That is the part Headroom is built for. It puts the bonus on your 12-month projection with a low, base and high case, and asks you to plan it before the month arrives. No bank login, ever.
This is general information, not tax or investment advice. Check your own pay stub and talk to a tax professional before acting on it.