California Bonus Tax Guide 2025 & 2026
Why your bonus is withheld at 10.23% in California — and what that actually means for your refund
California has one of the highest supplemental wage tax rates in the country. We created this guide to help California workers understand why their bonuses seem to disappear to taxes — and why the withholding rate rarely matches what you'll actually owe when you file your return.
How much tax does California take out of bonuses?
For both 2025 and 2026, California employers withhold 10.23% of your bonus for state income tax using the flat rate method. Combined with federal withholding at 22%, total withholding on a California bonus typically ranges from 32% to 45% depending on your situation. However, withholding is not your actual tax rate — you may receive part of it back as a refund when you file your tax return, since most filers' top California bracket (9.3% or lower) is below the 10.23% withholding rate.
- •California bonus withholding: 10.23% flat rate
- •Federal bonus withholding: 22% (37% on the part of the year's supplemental wages above $1M)
- •Aggregate method may reduce withholding for lower earners
- •Withholding ≠ actual tax liability — refunds are common
What Are Supplemental Wages in California?
Supplemental wages are payments made to employees outside their regular salary or hourly wages. In California, the Employment Development Department (EDD) defines supplemental wages to include bonuses, commissions, overtime pay, sales awards, back pay (including retroactive wage increases), stock options, restricted stock units (RSUs), and certain moving expense reimbursements.
The key distinction is that supplemental wages are taxed using special withholding rules that differ from your regular paycheck. California employers must follow EDD Publication DE 231PS when determining how much state income tax to withhold from these payments.
California's Two Supplemental Wage Rates
California uses two different flat supplemental wage rates depending on the type of payment:
- 10.23% — Applied to bonuses, stock options, stock appreciation rights, and similar equity compensation
- 6.60% — Applied to commissions, overtime, sales awards, back pay, and other supplemental wages
The 10.23% rate specifically targets lump-sum and equity-based compensation, reflecting California's progressive tax system and the state's position as home to many technology and finance workers who receive significant bonus and stock compensation.
Pro Tip
If your employer pays your bonus on the same paycheck as your regular wages, they must use the aggregate method instead of the flat rate — which can actually reduce your withholding if you're in a lower tax bracket.
Flat Rate Method vs. Aggregate Method
California employers have two options for withholding state income tax on supplemental wages. Understanding which method your employer uses can help you predict your take-home pay and plan for your tax refund.
| Method | CA State Withholding | Federal Withholding | Best For |
|---|---|---|---|
| Flat Rate (Bonus) | 10.23% of bonus | 22% of bonus (37% on the part of the year's supplemental wages above $1M) | Employers (simple, predictable) |
| Aggregate Method | Based on combined paycheck + bonus | Based on combined paycheck + bonus | Lower-bracket employees (often less withholding) |
When the Flat Rate Method Applies
The flat rate method (10.23% state + 22% federal) is used when supplemental wages are paid separately from regular wages — typically as a distinct paycheck or direct deposit. Most large California employers use this method for annual bonuses because it's administratively simpler and doesn't require recalculating regular paycheck withholding.
When the Aggregate Method Applies
The aggregate method is required when supplemental wages are paid on the same paycheck as regular wages. Your employer adds the bonus to your regular pay, calculates withholding on the total as if that were your normal paycheck, then subtracts what was already withheld from your regular wages. For many California workers in the 6-9% state tax bracket, the aggregate method results in less total withholding than the flat rate.
Watch Out
Assuming the 10.23% withholding is your actual tax rate. The 10.23% is a withholding estimate, not your final tax liability. California's actual tax brackets range from 1% to 12.3%. If your total income puts you in the 6% or 8% bracket, you'll likely get a significant refund of the over-withheld amount.
Total Withholding on a California Bonus
When you receive a bonus in California, multiple taxes are withheld. Here's the typical breakdown for a $10,000 bonus using the flat rate method:
Sample: $10,000 Bonus Withholding (California, 2026)
A $10,000 bonus in California can result in over $4,000 of combined withholding. However, as noted above, much of this may be refunded depending on your actual tax bracket, deductions, and credits.
Stock Options and Equity Compensation in California
California's 10.23% supplemental rate also applies to equity compensation, but with important nuances:
- Non-Qualified Stock Options (NQSOs): Taxed at exercise. The spread (fair market value minus exercise price) is subject to 10.23% California withholding.
- Restricted Stock Units (RSUs): Taxed at vest. The value at vesting is subject to 10.23% withholding.
- Incentive Stock Options (ISOs): California follows the federal rules: no regular income at exercise. The spread is an adjustment for both federal and California alternative minimum tax (California Schedule P). A disqualifying disposition makes the spread wages in the year of sale.
Because the ISO spread counts for California AMT as well as federal AMT, tech workers exercising a large ISO grant can owe California AMT even with little regular income tax from the exercise. Run the AMT math for both before exercising.
Strategies to Manage Bonus Tax Withholding
While you can't avoid withholding, you can optimize your overall tax situation:
- Adjust your W-4/DE 4: If you consistently receive large refunds from bonus over-withholding, reduce your regular paycheck withholding to keep more money throughout the year.
- Time your bonus: If possible, negotiate bonus timing. Receiving a bonus in January instead of December may defer tax liability and give you more time to plan deductions.
- Max out pre-tax contributions: Increase 401(k), HSA, or IRA contributions in years with large bonuses to reduce your taxable income and potentially your effective tax rate.
- Ask about the aggregate method: Some employers will use the aggregate method if you request it, especially if your regular income puts you in a lower tax bracket.
- Plan for state tax credits: California offers credits for things like the Earned Income Tax Credit, Child and Dependent Care Credit, and renter's credit that can offset high withholding.
Pro Tip
If you're expecting a large bonus or stock vest, run the numbers in Taxly's Bonus Tax Calculator first. It shows both your withholding and estimated actual tax, so you know whether to expect a refund or owe more at filing time.
Many California workers are shocked to see 40%+ of their bonus disappear to withholding. The good news: that's rarely your final tax bill.
Real-world scenario
A San Francisco software engineer received a $25,000 annual bonus
Her employer withheld 10.23% California tax ($2,558) plus 22% federal ($5,500). She panicked thinking she'd owe $8,000+ in taxes on the bonus alone. When she filed, the bonus had added about $2,325 of California tax (it fell in her 9.3% bracket), so roughly $230 of the $2,558 withheld came back — assuming her regular-pay withholding matched the tax on her salary.
The part most people miss
California's progressive tax system means your top bracket is usually 9.3% or lower, below the 10.23% supplemental withholding rate — so the flat rate usually over-withholds a little on the bonus. Above about $371,000 of taxable income (2025 single) your bracket is 10.3% or more and the flat rate under-withholds.
Frequently Asked Questions
Sources: California EDD Employer's Guide (DE 44) 2026, DE 231PS Supplemental Wage Withholding, IRS Publication 15
Last updated July 30, 2026. Tax laws change frequently. This guide is for educational purposes and does not constitute tax advice.
Sources & References
Primary references used for this content
California Employer's Guide
EDD supplemental wage withholding rates (10.23% bonuses/stock options, 6.6% other) and the 1.3% 2026 SDI rate
View on edd.ca.gov
State Tax Agencies Directory
Every state revenue department — the authority for state figures
View on taxadmin.org
Tax Withholding and Estimated Tax
Withholding rules and the estimated-tax safe harbors
View on irs.gov
✓3 primary sources; links re-checked on a weekly rotation by the source watcher