Last December, a friend bragged in our group chat about receiving a year-end bonus of a thousand dollars from the bakery where they worked part-time. Everyone was congratulating them, but a few days later, they posted a screenshot of the deposit details.

The amount was much lower than expected. My friend was really upset, thinking the company had made a mistake.

I also thought that bonuses had additional taxes applied to them at the time. But when I looked it up, I found out that wasn't the case.

Now that it's October, the year-end bonus season is just around the corner. I decided to summarize this information so we can be less surprised this year.

The first term to know is "supplemental wages." The IRS refers to bonuses and commissions as such, distinguishing them from regular monthly salaries.

If a company pays bonuses separately from salaries, they can use a fixed federal income tax rate of 22%. This 22% is stated to remain unchanged in the 2026 IRS Publication 15.

If the total bonuses received in a year exceed $1 million, a rate of 37% applies to the amount over that. Honestly, this doesn't concern most of us, but it's interesting to know.

Additionally, there is a tax called FICA. Social Security is 6.2% and Medicare is 1.45%, and this is deducted the same way whether it's a bonus or a salary.

So, for a thousand-dollar bonus, $220 goes to federal income tax, $62 to Social Security, and $14.50 to Medicare. That totals $296.50.

In Maryland, it doesn't stop there. According to the state government's withholding guide, one-time payments like annual bonuses are taxed at the highest state rate of 6.50%.

On top of that, local income tax from the county where you live is also applied. For example, Prince George's County has a rate of 3.20% as of 2026.

This is why the amount that shows up in your bank account is significantly lower. When I first did the math, I was genuinely shocked.

But there's a twist. The 22% is not the actual tax rate; it's just a withholding rate, meaning it's the percentage taken out in advance.

The actual tax owed is recalculated in the spring of the following year based on total income for the year. If you paid too little, you'll owe more; if you paid too much, you'll get a refund.

The standard deduction for singles in 2026 is $16,100. If your total income for the year is less than this, your federal income tax could be $0.

Even if you have taxable income, the rates are 10% up to $12,400 and 12% up to $50,400. If your income falls into a lower bracket than 22%, any excess withheld from your bonus will be refunded.

However, if you are claimed as a dependent, the deduction calculations change. It's safest to ask a tax professional about this.

Maryland state and county taxes are also recalculated based on annual income. So, don't just file your federal taxes; make sure to take care of your state tax filing as well.

And to get a refund, you must file your taxes. If you don't report because your income is low, the money that was withheld will just stay there.

FICA is a different story. Social Security and Medicare are not refundable, so the 7.65% deducted from your bonus won't come back.

Sometimes, companies use an aggregate method instead of the 22%. This means they calculate the bonus as if it were combined with that month's salary.

This can result in a higher withholding for that month, as it makes it look like you have a much higher annual income. However, it doesn't increase your total tax liability for the year.

Some friends thought bonuses would be subject to new deductions due to news about tips and overtime. But bonuses are not subject to those deductions, so don't expect that.

So, here's what I've summarized as tasks. When you receive a bonus, check your pay stub to see how much was deducted for federal, state, county, and FICA.

If your company offers a 401(k), ask if you can contribute a portion of your bonus. That part will be deducted from federal income tax, but FICA will still apply.

If you find that your refunds are too large or you owe a lot, adjusting your W-4 might be a good idea. In Maryland, there's a separate form called MW507.

The most important thing is to never skip filing your taxes in the spring of the following year. There are free filing programs available, so especially for part-timers, I hope you take advantage of them.

Honestly, it's a bit unfair that no one teaches this in school. It's a structure that can easily lead to losses for first-time workers or those with low incomes.

That friend ended up getting a significant refund on their federal income tax when they filed in the spring. They used that money to buy a pecan pie for everyone in the group chat.

For those receiving bonuses this year, don't be too shocked by the numbers. Just remember that some of the withheld money can come back in the spring, and that alone will make you feel a lot better.