The bonus tax that isn’t: how the 22% rule makes millions lend the government money for free.

The flat 22% federal withholding on bonuses is the same for everyone — but most workers aren't in the 22% bracket. For anyone in the 12% bracket (roughly a $50,000 single earner), that 22% withholding is nearly double what they actually owe. On a $10,000 bonus, they have $2,200 withheld federally but really owe about $1,200 — an over-payment of $1,000.

The interest-free loan nobody agreed to

That $1,000 isn't lost — it comes back as a tax refund. But it comes back months later, with no interest. In effect, every 12%-bracket worker who gets a bonus is making a small interest-free loan to the government until they file. Across the roughly $1 trillion in annual US bonuses, the systematic over-withholding on lower-bracket workers adds up to billions lent free of charge.

There's a legitimate way to keep more of it upfront: divert the bonus into a pre-tax 401(k) or HSA before it's withheld at all. See what your own bonus really nets with the bonus tax calculator.