Understanding Bonus Taxation in Texas for 2025

Bonuses add extra money to your paycheck but have special tax rules. Texas has no state income tax, but federal taxes still apply.

The IRS calls bonuses “supplemental wages” and taxes them differently than regular income.

Your employer will use one of two methods to withhold federal taxes from your bonus in 2025.

Knowing these methods helps you predict your take-home amount.

Common types of bonuses subject to taxation include:

1. Performance bonuses
2. Holiday cash bonuses
3. Signing bonuses
4. Commission payments
5. Profit-sharing distributions
6. Retention bonuses

How Are Bonuses Taxed in Texas in 2025?

If you’re getting a bonus in Texas, you might wonder how much of it you’ll actually take home. The good news? Texas doesn’t have a state income tax, so there’s no extra deduction at the state level. However, your bonus is still subject to federal taxes just like regular income.

👉 Key Factors Affecting Your Bonus Tax in Texas:

Income Level: If your total earnings exceed $1 million, the IRS applies a 37% withholding rate on your bonus.

Withholding Method: Employers use either the percentage method (22%) or the aggregate method (which considers your overall income and may result in higher withholding).

Payroll Deductions: Social Security (6.2%) and Medicare (1.45%) taxes also apply, reducing your take-home pay.

While there’s no state tax on bonuses, your federal tax liability depends on how your employer processes the payment. If too much is withheld upfront, you may get a refund when you file your tax return.

Are Bonuses Taxed at a Higher Rate in Texas?

Bonuses are not taxed at higher rates in Texas. The withholding method creates this impression, but your final tax rate depends on your total yearly income.

Facts about bonus tax rates:

1. Bonuses are regular income, not specially taxed
2. 22% withholding is just an estimate
3. Your actual tax depends on your total yearly income
4. You may get a refund if too much was withheld
5. The same federal tax brackets apply to all income
6. There is no special “bonus tax”

Can I Reduce Bonus Tax Withholding?

You cannot directly change the withholding rate on bonuses if your employer uses the percentage method, but there are alternatives.

Options to manage bonus tax withholding:

1. Adjust regular paycheck withholding
2. Ask about using the aggregate method
3. Plan for potential tax refund when filing
4. Consult a tax professional
5. Remember that withholding isn’t your final tax

How Federal Bonus Tax Withholding Works in 2025

# The Percentage Method

The percentage method is the simplest way employers calculate bonus tax withholding. Your employer takes 22% from your bonus for federal income tax (for bonuses under $1 million).

For bonus amounts over $1 million, the portion above $1 million is taxed at 37%. This method keeps your bonus taxes separate from your regular paycheck taxes.

Key facts about the percentage method:

1. 22% flat rate for bonuses up to $1 million
2. 37% rate on amounts above $1 million
3. Calculated separately from regular wages
4. May result in over-withholding
5. Most commonly used by employers

# The Aggregate Method

The aggregate method combines your bonus with your regular paycheck for tax calculations. Your employer adds your bonus to your normal wages and calculates withholding as if it was one payment.

This method often takes more taxes from your bonus because the combined amount might push you into a higher tax bracket temporarily.

How the aggregate method works:

1. Combines bonus with regular paycheck
2. Usually results in higher withholding
3. It better reflects your actual year-end tax liability
4. Used for bonuses paid with regular paychecks
5. More complicated for payroll processing

Texas Bonus Tax Advantages in 2025

No State Income Tax

Texas workers enjoy a major benefit: no state income tax on any wages, including bonuses.

Unlike employees in states with income taxes, Texans only worry about federal taxes on their bonus payments.

This means you keep more of your bonus compared to workers in high-tax states like California or New York.

Benefits of no state income tax in Texas:

1. Zero state tax on any bonus amount
2. Higher net bonus than in most states
3. No state tax forms to file
4. Significant savings on large bonuses
5. Simpler tax calculation

Other Applicable Taxes on Texas Bonuses

While Texas doesn’t charge state income tax, other federal payroll taxes still apply to bonuses:

Federal taxes that still apply to Texas bonuses:

1. Social Security tax: 6.2% (up to $171,400 annual limit)
2. Medicare tax: 1.45% (no income limit)
3. Additional Medicare surtax: 0.9% (for high earners)
4. Possible retirement plan contributions
5. Health insurance premiums (if applicable)