Receiving a large signing bonus is an unforgettable moment that’s often the culmination of years of hard work and elite performance. However, it’s important to remember that the amount that actually lands in your account will be smaller than the amount stated on your contract.
In most scenarios, your employer will withhold federal and state income taxes from your signing bonus, reducing the amount that ultimately reaches your bank account.
A similar scenario applies to a college athlete signing a large NIL deal or their first professional contract, with one twist. Athletes are often required to pay their own taxes, meaning the athlete is responsible for withholding the correct amount to cover their tax obligation.
Long story short, if you receive a $10,000 signing bonus, don’t assume you have $10,000 to spend.
This guide explains how signing bonuses are taxed at the federal and state level, why the withholding rate misleads nearly everyone who receives one, and how bonuses interact with your tax bracket.
Negotiating a contract with a large signing bonus?
Contact the team at ARQ Wealth to build a tax strategy before you sign, not after. Call us at (480) 605-4585.
What Is a Signing Bonus According to the Tax Code?
A signing bonus is additional compensation paid after signing a contract, separate from the salary you earn for doing the job. But while the name says “bonus,” the IRS still views it as income:
- The IRS defines signing bonuses as supplemental wages, or compensation paid in addition to an employee’s regular wages, including bonuses, commissions, and severance pay.
- This means they’re reported on Form W-2 as ordinary income and must be included in the employee’s gross income for the tax year in which they are received.
There are two main things to know when receiving a signing bonus:
- You’ll have to pay taxes on the bonus, since the IRS views it as income similar to your paycheck or regular earnings.
- A large signing bonus can push you into a higher federal income tax bracket, raising your overall tax bill. For example, if you’re a single filer earning $200,000 and land a $10,000 signing bonus, your total income is now $210,000, which pushes you into a new tax bracket and raises your tax rate from 24% to 32%.
When planning for your signing bonus tax bill, you should prepare to make payments at the federal and state level, depending on which state you live in.
How States Tax Signing Bonuses
Most states do tax signing bonuses and treat them as ordinary income. However, state tax rates vary widely, from 0% in states like Florida and Texas to over 13% in California. For professional or collegiate athletes, signing bonuses are often taxed in a single state, but every contract is different.
Some states require a flat supplemental withholding rate, others require employers to use standard wage tables, and several do not tax wage income at all. For example, Arizona applies a flat 2.5% rate to income, bonuses included, while California withholds a flat 10.23% on bonuses, on top of a top marginal rate that climbs to 13.3%.
An athlete at the University of Arizona will have a much different tax filing than an athlete at the University of Southern California. This is why it’s best to consult with a tax professional, CPA, and lawyer to determine whether you may owe taxes in other states related to your signing bonus.
Three Moves to Reduce Your Signing Bonus Tax Bill
Every tax situation is different, so treat these as starting points to raise with an advisor — not one-size-fits-all rules.
Defer the payment across tax years
Your tax bill works on an annual calendar and includes all income you earn from January 1st to December 31st. If you expect to receive your bonus close to the end of the year, then being strategic with when you’re paid could help reduce your bill.
For example, if your bonus is scheduled for late December and you expect a lower income in the year ahead, negotiating a January payment date can bump the extra income into a year with more room in the lower bracket.
Or, if you get paid once a year through an NIL collective, do your best to ensure that those payments are landing in separate tax years – not school calendar years. If multiple checks land in the same tax year, it could lead to a higher tax bill.
This strategy works best when your income is uneven, which is common for athletes or people changing jobs mid-year.
Make contributions to retirement accounts with tax advantages
Cash bonuses create a great opportunity to minimize your tax burden by contributing a portion of your check to a retirement account.
If you put part of your bonus into a pre-tax retirement account, that money does not count as income on your tax return. This offers three benefits:
- Stability: You set aside money for your future and start building financial security.
- Growth: Your retirement account can potentially grow in value over the coming years.
- Potential Lower Tax Bill: The contributions you make reduce your income, potentially lowering your tax bill.
Consider making charitable donations
Giving away a portion of your income to charity can also help lower your tax bill in certain states. For example, Arizona offers a Charitable Tax Credit that allows taxpayers to reduce their state tax liability by making charitable donations to qualified organizations, up to a certain limit.
However, the timing and structure of these payments are very important, so it’s best to speak with a financial advisor before making any charitable payments.
Build Your Bonus Strategy With ARQ Wealth
A signing bonus could be the largest single lump sum that a person ever receives in their life. It’s important to understand exactly how much of that you’ll keep, and how much gets turned over to Uncle Sam.
Working with a fee-only fiduciary advisor is one of the best ways to prepare for the tax obligations that a bonus creates. A fee-only fiduciary firm, like ARQ Wealth, does not earn compensation from selling financial products. This helps mitigate any conflicts of interest and ensures that all of our recommendations are in your best interest, not ours.
Schedule a free consultation with ARQ Wealth today to build a plan around your compensation, your timeline, and your goals.
This includes figuring out what your sign-on bonus after taxes may look like and filing your tax return on time.
Signing Bonus Tax Calculator
There’s no separate signing bonus tax calculator, but you can ballpark your take-home in two quick steps. Start with the percentage method — 22% federal withholding on the first $1 million, 37% above that — then subtract 7.65% for Social Security and Medicare, plus your state’s rate.
Take a $100,000 bonus paid on its own check: about $22,000 comes out for federal withholding and $7,650 for Social Security and Medicare, leaving roughly $70,350 before state tax. Your final number depends on your bracket, your state, and whether you’ve already crossed the Social Security wage base.
For a precise estimate, explore the IRS Tax Withholding Estimator to see how much you’ll likely owe in federal taxes.
Frequently Asked Questions
What is the signing bonus tax rate in 2026?
There is no separate signing bonus tax rate. Signing bonuses are treated as supplemental wages and taxed as regular income.
Are signing bonuses taxed differently from salary?
No. A signing bonus is ordinary income taxed at your marginal bracket rate, exactly like salary. What differs is withholding. Employers withhold a flat 22% on supplemental wages up to $1 million and 37% above that amount, which is often less than a high earner actually owes.
Can I avoid state taxes on my signing bonus?
Not if you are required to pay them. However, if you reside in a state with no income tax and your bonus is nonrefundable, paid separately from salary, and not contingent on future services, it may be possible to source the bonus entirely to your state.