Do Bonuses Count Toward 401(k), Medicare, and Social Security in Texas?
By Team SalaryCalculate · 7/22/2025
Bonuses can feel like a reward—until you see how much is taken out. In Texas, bonuses are treated just like regular wages when it comes to most federal programs. That means yes, your bonus counts toward your 401(k) contributions, Medicare taxes, and Social Security taxes. But the way it’s taxed can be confusing—and costly—if you're not prepared.
Let’s break it down: your employer can withhold part of your bonus for retirement, Medicare, and Social Security. In fact, they’re required to withhold 6.2% for Social Security (up to the annual cap) and 1.45% for Medicare—with no cap. If your total earnings cross $200,000, an extra 0.9% Medicare tax kicks in. And yes, your 401(k) deductions can be taken from your bonus too, if you’ve opted in. But what really stings is how income tax is withheld on bonuses, which can be higher than your usual paycheck. This often leaves Texans wondering why so much tax was taken from their bonus.
Let’s walk through exactly how bonuses are treated for retirement plans, Medicare, and Social Security—and what you can do to keep more of what you earn.
Bonuses and 401(k) Contributions
If you contribute to a 401(k), you can usually have part of your bonus go into that account. But it depends on two things:
- Your plan rules – Some employers exclude bonuses from 401(k) contributions unless you explicitly opt in.
- Your election setup – If you chose to contribute 10% of all compensation and your bonus is part of “eligible compensation,” 10% will come from that bonus too.
Most plans use one of two methods:
| Contribution Setup | What Happens to Your Bonus |
| Percentage of pay | A % of your bonus goes into your 401(k), automatically |
| Flat dollar amount per period | No contribution from bonus unless manually changed |
If you want to maximize your 401(k) contributions using your bonus, check your plan rules early in the year. Some plans let you change elections before the bonus hits.
Bonuses and Medicare Taxes
Medicare tax applies to all earned income, including bonuses. For 2025 and 2026, here’s what you need to know:
- Standard Medicare tax: 1.45% on all wages
- Additional Medicare tax: 0.9% on income over $200,000 (for individuals)
There’s no cap for Medicare tax, so even a large one-time bonus is fully taxed. Your employer will automatically withhold Medicare taxes from your bonus.
Example:
Let’s say you make $190,000 in regular salary and get a $20,000 bonus in December.
- $190,000 × 1.45% = $2,755 Medicare tax (standard)
- $10,000 of bonus is over $200,000 threshold → $10,000 × 0.9% = $90 additional Medicare tax
So your total Medicare tax on the bonus alone is:
- $20,000 × 1.45% = $290
- Plus $90 (extra) = $380 total
Bonuses and Social Security Taxes
Social Security tax applies up to a yearly wage limit. For 2025, that limit is $168,600. Your bonus only gets hit with Social Security tax if your total wages haven’t already hit that cap.
The Social Security tax rate is 6.2%.
Example:
Let’s say your regular salary is $160,000 and you receive a $15,000 bonus.
- Your total income becomes $175,000
- But Social Security caps at $168,600
- So only $8,600 of your bonus is taxed
→ Social Security tax = $8,600 × 6.2% = $533.20
Why Is Bonus Tax Withholding So High?
When you get a bonus, it might feel like the IRS took half. That’s because bonuses are usually taxed differently from regular pay.
There are two IRS-approved methods for employers:
- Percentage method – Withhold a flat 22% for federal income tax (2025 rule)
- Aggregate method – Combine your bonus with regular wages and apply standard tax rates
Many Texas workers see higher withholding using the percentage method. But the final tax you owe depends on your total income at year-end. That extra tax might be refunded when you file.
What You Can Do to Prepare
- Check your 401(k) elections – Decide if you want part of your bonus to go into retirement savings.
- Review year-to-date income – See if you’ve hit the Social Security cap.
- Account for Medicare thresholds – Remember the extra 0.9% over $200,000.
- Talk to HR or payroll – Ask which tax withholding method they use for bonuses.
- Use calculators – Tools like the Texas net salary calculator give you a better take-home picture.
FAQs
Q: Can I avoid taxes on my bonus by putting it all into my 401(k)?
Not entirely. You can defer federal income tax, but Social Security and Medicare taxes still apply. And your plan may cap how much you can contribute in a year.
Q: Is the bonus withholding the final tax I owe?
No. It’s just a placeholder. Your actual tax bill is calculated when you file. You might get a refund if too much was withheld—or owe more if not enough was taken out.
Q: Do Texas state taxes apply to bonuses?
Nope. Texas doesn’t have a state income tax. That means no extra bite from the state, just federal taxes.
Why was so much taken from my bonus? It’s likely the 22% federal withholding rate. We broke it down more in this bonus tax article.
Final Thoughts
Bonuses can give your finances a real boost—if you understand how they’re taxed. In Texas, there’s no state tax to worry about, but federal taxes can still pack a punch. Knowing how 401(k) plans, Medicare, and Social Security treat bonuses can help you plan smarter and take home more.
Use your bonus to your advantage—whether that’s bumping your retirement savings, avoiding a surprise tax bill, or just finally booking that trip. You earned it.