How are bonuses taxed?

Bonuses are taxed differently by the federal and state governments, depending on the amount of compensation received. The IRS considers bonuses to be supplemental wages and applies different federal withholding rules to them. For bonuses of $1 million or less, there is a 22% withholding flat tax rate, and for bonuses over $1 million, the rate is 22% on the first million and 37% on the amount above the first million. State taxes on bonuses also vary.