Retention Bonus Tax Calculator 2026
If your employer offered a retention bonus (stay-pay agreement), this calculator shows your real after-tax take-home after federal supplemental withholding, Social Security, Medicare, and state tax. Negotiate from the actual net, not the gross.
| Gross Bonus | — |
| Federal Tax Withheld | — |
| Social Security (6.2%) | — |
| Medicare (1.45%) | — |
| Additional Medicare (0.9%) | — |
| State Tax | — |
| Net Take-Home | — |
| True Federal Tax (at marginal) | — |
| Refund/Owe at Tax Filing | — |
How Retention Bonuses Are Taxed
A retention bonus (also called a "stay bonus" or "stay-pay agreement") is supplemental income paid to keep an employee through a critical period — common during M&A, restructurings, or executive departures. The IRS treats retention bonuses as supplemental wages, separately from regular salary, and applies one of two withholding methods (source: IRS Publication 15).
Flat 22% is the default for supplemental wages under $1 million per year. Flat 37% applies to amounts above $1 million cumulative supplemental wages in a single year. The aggregate method adds the bonus to your regular paycheck and uses your normal W-4 withholding tables — sometimes lower, sometimes higher than 22%, depending on your filing status and YTD income.
The 22% Withholding Trap for High Earners
If your marginal federal rate is 32%, 35%, or 37%, the standard 22% supplemental withholding under-withholds substantially. You will owe the difference at tax filing — potentially with an underpayment penalty if your total withholding falls below safe harbor (90% of current year or 100%/110% of prior year). A $50,000 retention bonus at 22% withholding for a 35% marginal earner means $6,500 owed at filing on the federal alone.
Plan ahead: increase regular paycheck withholding via a new W-4 in the months following the bonus, or make a Form 1040-ES estimated payment to cover the gap. Use our quarterly estimated tax calculator to size the safety payment.
FICA Cap and Additional Medicare
Social Security tax (6.2%) applies up to the 2026 wage base of $168,600. If your YTD wages already hit that cap, the bonus is exempt from Social Security tax. Medicare tax (1.45%) has no cap. The Additional Medicare Tax (0.9%) kicks in on wages above $200,000 single or $250,000 married filing jointly — your employer must withhold this once your YTD wages exceed $200,000 (regardless of filing status).
The calculator above auto-detects whether the Additional Medicare Tax applies based on your YTD wages plus the bonus. You can override this if needed.
State Tax Considerations
Many states have flat supplemental withholding rates that differ from regular income tax: California 10.23% (employee), New York 11.7%, New Jersey varies. No-tax states (FL, TX, WA, etc.) withhold zero. Check your state's withholding tables for the exact bonus rate. The aggregate method always uses your regular state withholding, which may differ from the supplemental flat rate.
Last updated April 2026. Sources: IRS Pub 15 (Circular E), SSA wage base, IRS supplemental wages rules.