Bonuses paid to Maryland employees are taxed as supplemental wages, which means federal income tax (usually a flat 22%), Maryland state income tax (2% to 6.5% on a graduated scale for 2026), a local county or city tax between 2.25% and 3.30%, and the standard 7.65% for Social Security and Medicare all come out before the money reaches you. The combined withholding typically runs from about a third of the bonus to more than 40% for higher earners. So how are bonuses taxed in Maryland in practice? The short answer: four layers of tax, each calculated on the full bonus amount, with your county of residence and your year-to-date earnings deciding where in the range you land.
Federal Withholding Is the Biggest Piece
The IRS classifies bonuses as supplemental wages and gives employers two ways to withhold federal income tax. The flat-rate method applies 22% directly to the bonus, with no reference to your W-4 or regular pay. If the bonus is paid separately and identified as a bonus, this is what most payroll departments use.
The aggregate method combines the bonus with your regular wages for the pay period and withholds as if the whole amount were a single paycheck. Because the lumped total pushes you into a higher apparent bracket for that cycle, aggregate withholding often takes more up front than the flat method. Any over-withholding usually comes back as a refund when you file, but the smaller check in the moment can catch you off guard.
A separate rule applies at the very top. Once your total supplemental wages from one employer cross $1 million in a calendar year, every dollar above that threshold is withheld at a mandatory 37%, regardless of what your W-4 says.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
Maryland State Income Tax
Maryland uses graduated brackets, not a single rate. For 2026 the schedule begins at 2% on the first $1,000 of taxable income and steps upward from there. Most full-time workers sit in the 4.75% bracket, which covers taxable income from $3,001 to $100,000 for single filers and up to $150,000 for joint filers.2Comptroller of Maryland. 2026 Maryland State and Local Income Tax Withholding Information
For 2026, Maryland added two new brackets at the top:
- 6.25% on taxable income from $500,001 to $1,000,000 (single) or $600,001 to $1,200,000 (joint)
- 6.50% on taxable income above $1,000,000 (single) or above $1,200,000 (joint)
These tiers matter if a year-end bonus pushes your total income across a bracket line. The portion that lands in the higher bracket is taxed at that higher rate, which is one reason the state tax actually owed on a bonus can differ from the amount withheld during the pay period.3Maryland General Assembly. Maryland Code, Tax – General 10-105
Local County and City Tax
Maryland is one of the few states where counties and independent cities levy their own income tax on top of the state rate. The local rate follows where you live, not where you work, and your employer identifies that rate from the Form MW507 on file. For 2026, local rates run from 2.25% in Worcester County to 3.30% in Kent County, with several large jurisdictions (including Baltimore City and Allegany County) clustered at 3.20%.2Comptroller of Maryland. 2026 Maryland State and Local Income Tax Withholding Information
If no MW507 is on file, Maryland defaults your local withholding to the highest rate of 3.30%. That’s a full percentage point more than residents in the lowest-rate counties owe, so a current form is an easy way to keep more of each check. The local rate applies to the same taxable base as the state tax, so your bonus is subject to it just like regular wages.
Social Security, Medicare, and the Additional Medicare Tax
Payroll taxes apply to bonuses exactly as they apply to regular pay: 6.2% for Social Security and 1.45% for Medicare come out of your check, with the employer matching both.4Social Security Administration. Social Security and Medicare Tax Rates The Social Security portion only applies to earnings up to the 2026 wage base of $184,500.5Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet If your year-to-date wages have already passed that line, no Social Security tax comes out of the bonus. Medicare’s 1.45% has no cap.
Higher earners also owe the Additional Medicare Tax: an extra 0.9% on wages above $200,000, or $250,000 for joint filers. Your employer must start withholding it once your cumulative wages pass $200,000, regardless of filing status. A bonus that pushes you across that line triggers the 0.9% on the excess.6Internal Revenue Service. Topic No. 560, Additional Medicare Tax
What a $5,000 Bonus Actually Nets
Take a single Maryland resident living in Baltimore City (3.20% local rate), earning a salary that sits in the 4.75% state bracket, with the employer using the federal flat 22% method and no 401(k) deferral on the bonus:
- Federal income tax at 22%: $1,100
- Maryland state income tax at 4.75%: $237.50
- Baltimore City local tax at 3.20%: $160
- Social Security at 6.2%: $310
- Medicare at 1.45%: $72.50
- Total withheld: $1,880
- Net bonus: $3,120
That’s a 37.6% effective withholding rate. Move the same worker to Kent County at 3.30% and the total withheld rises to $1,885. A worker in the 5.75% state bracket would lose roughly another $50 on the same bonus. If year-to-date wages have already topped the $184,500 Social Security wage base, drop the $310 Social Security line entirely.4Social Security Administration. Social Security and Medicare Tax Rates
Can a 401(k) Contribution Reduce the Hit?
Sometimes. If your employer’s plan runs traditional 401(k) deferrals through bonus pay, the contribution reduces the amount subject to federal and state income tax withholding. A $5,000 bonus with a 10% deferral leaves $4,500 subject to income tax. The deferral does not reduce Social Security and Medicare, which still apply to the full $5,000.7Internal Revenue Service. 401(k) Plan Overview Not every plan takes deferrals from bonuses. Check the plan document or ask HR before assuming the withholding math will shift.
Gift Cards and Non-Cash Awards
A gift card is not a tax-free thank you. The IRS treats cash equivalents as taxable wages at fair market value, and gift cards are never excludable as a de minimis fringe benefit regardless of amount.8Internal Revenue Service. De Minimis Fringe Benefits The same applies to electronics or other tangible non-cash rewards in most cases. The employer reports the value on your W-2 and withholds income tax, Social Security, and Medicare just as with a cash bonus. Some employers gross up non-cash awards to absorb the tax, but they are not required to.
If You Live in Maryland but Work Across State Lines
Maryland has reciprocity agreements with D.C., Virginia, Pennsylvania, and West Virginia. If you live in Maryland and work in one of those jurisdictions, your bonus should be subject to Maryland income tax withholding only, not the work state’s tax, provided your employer has a current exemption certificate on file.9Comptroller of Maryland. Personal Tax Tip 56 – When You Live in One State and Work in Another Delaware is the exception: it has no reciprocity agreement with Maryland, so Maryland residents working in Delaware pay Delaware tax and claim a credit on their Maryland return.
Withholding Is Not Your Final Bill
What comes out of your bonus check is an estimate. The federal flat 22% has no connection to your actual marginal rate, so if your true rate is 12%, you get the excess back as a refund; if it’s 24%, you owe the difference in April. Maryland state and local tax work the same way: the amount withheld may not match the liability calculated on Form 502.
The most common shortfall happens when a large bonus pushes income into a higher state bracket than payroll withholding assumed. Maryland’s new 6.25% and 6.50% brackets make this more likely for high earners expecting a sizeable year-end payout.3Maryland General Assembly. Maryland Code, Tax – General 10-105 If you know a big bonus is coming, you can direct extra withholding using line 2 of Form MW507 so the April bill doesn’t catch you off guard.