By Team SalaryCalculate · 7/22/2025
If you live and work in Texas, the good news is simple: you don’t pay state income tax—on your salary or your bonus. Texas is one of just nine states with no state income tax, which means whether you get a year-end bonus, a signing bonus, or a commission check, there’s no state-level deduction taken from it.
But that doesn’t mean you get to keep the whole bonus.
You still pay federal income tax on bonuses. In fact, bonuses are often taxed at a higher rate upfront than regular pay. Many employers use a flat 22% federal withholding method for bonuses under $1 million. On top of that, Social Security and Medicare taxes still apply.
So while your state won't take a cut, the IRS definitely will. To see how much of your bonus you'll actually take home in Texas, try this free bonus calculator.
What Makes Texas Different?
Most U.S. states collect income tax from your paycheck. But Texas doesn’t. That’s part of what makes the Lone Star State attractive for high earners and people with variable income like bonuses or commissions.
Still, some folks get confused because of how bonuses are taxed at the federal level. The IRS treats bonuses as “supplemental wages,” which are subject to special withholding rules. Let’s break that down.
How the IRS Taxes Bonuses in 2025/2026
There are two main ways the IRS says employers can withhold federal tax from your bonus:
1. Flat Rate Method
• For bonuses under $1 million, employers can withhold 22%.
• For bonuses over $1 million, the withholding jumps to 37%.
This is the most common method. It’s simple for payroll departments and applies the same rate whether you’re an entry-level worker or a C-suite executive.
2. Aggregate Method
• The employer combines your bonus with your regular paycheck and withholds tax based on your usual tax rate.
• This often results in a higher withholding amount, especially for people with high YTD income.
This method can feel like a tax hike because your paycheck might suddenly jump a tax bracket. But it’s just a withholding difference—it may even out when you file your return.
Even in Texas, bonuses still face:
| Type of Deduction | Applies to Bonus? | 2025/2026 Rate |
|---|---|---|
| Federal Income Tax | ✅ Yes | 22% (standard flat rate) |
| Social Security Tax | ✅ Yes | 6.2% (up to $168,600 earnings cap) |
| Medicare Tax | ✅ Yes | 1.45% (plus 0.9% extra over $200k income) |
| State Income Tax | ❌ No | 0% in Texas |
| Local Income Tax | ❌ No | None in Texas |
Real-World Example
Case 1: $10,000 Bonus in Texas
| Description | Amount |
|---|---|
| Gross Bonus | $10,000 |
| Federal Tax (22%) | -$2,200 |
| Social Security (6.2%) | -$620 |
| Medicare (1.45%) | -$145 |
| Take-Home Bonus | $7,035 |
FAQs
Q: Do Texas cities or counties charge income tax on bonuses?
A: Nope. Texas doesn’t allow local income tax either. Cities like Houston, Dallas, and Austin do not collect income tax.
Q: Do I need to report my bonus separately on my tax return?
A: No. Your bonus is included in your total wages on your W-2. It’s not a separate line item.
Q: Can I reduce taxes on my bonus?
A: Yes—if your employer allows it. Consider deferring it, contributing to a 401(k), or using an HSA or FSA if you’re eligible.
Common Misunderstandings
“Texas doesn’t tax bonuses at all.” True for state tax—but not true federally.
“My entire bonus is taxed at 37%.” That’s only for bonuses over $1 million, and even then, it’s just the withholding—not your actual tax liability.
“I lost 40% of my bonus!” You may have been over-withheld. Check your final W-2 and refund.
Planning Tips for Bonus Season
• Run the numbers using a bonus calculator.
• Set money aside for tax season.
• Consider deferring income.
• Talk to a CPA if you're unsure how your bonus affects your tax position.
Want to dig deeper? Read our full guide on how bonuses are taxed in Texas.
