Are Sign-On Bonuses Taxed? — What to Know Before Accepting
Yes — sign-on bonuses (also called signing bonuses) are fully taxable. The IRS treats them as supplemental wages, just like performance bonuses, commissions, and overtime. They're subject to federal income tax withholding (22%), FICA taxes (7.65%), and state income tax. But there's an added wrinkle: if you leave the company before a specified period, you may need to repay the gross amount — even though you only received the net.
Calculate the after-tax value of your sign-on bonus with the Bonus Tax Calculator.
How Sign-On Bonuses Are Taxed
| Tax | Rate | On $20,000 Sign-On |
|---|---|---|
| Federal income tax withholding | 22% | $4,400 |
| Social Security | 6.2% | $1,240 |
| Medicare | 1.45% | $290 |
| State income tax (example: 5%) | 5% | $1,000 |
| Total withheld | ~34.65% | $6,930 |
| Net received | $13,070 |
On a $20,000 sign-on bonus, you receive roughly $13,000 after all withholding. This is important to know before you factor the bonus into your financial plans.
The Clawback Problem
Most sign-on bonuses come with a repayment clause: if you leave the company within 1–2 years, you must repay some or all of the bonus. The problem: the employer typically requires repayment of the gross amount, not the net you received.
| Scenario | Amount Involved |
|---|---|
| Sign-on bonus (gross) | $20,000 |
| Amount you received (after taxes) | $13,070 |
| Amount employer requires if you leave | $20,000 (gross) |
| Out-of-pocket cost to you | $6,930 you already paid in taxes + $13,070 repayment = $20,000 |
Some employers require gross repayment, meaning you repay $20,000 even though you only received $13,070. You can recover the withheld taxes by filing amended returns or claiming a deduction, but it takes time and effort.
Better employers require only net repayment ($13,070) and handle the tax adjustment on their end. Ask about this before accepting.
Negotiating a Better Sign-On Bonus
| Negotiation Point | Why It Matters |
|---|---|
| Net vs gross repayment clause | Gross repayment is costly if you leave |
| Repayment period | 1 year is better than 2 for you |
| Pro-rated repayment | If you leave after 8 of 12 months, only repay 4/12 |
| Timing (January vs December) | January pushes tax liability into the new year |
| Relocation bonus instead | May have different tax treatment or deductibility |
Sign-On Bonus vs Relocation Bonus
| Feature | Sign-On Bonus | Relocation Bonus |
|---|---|---|
| Tax treatment | Fully taxable | Fully taxable (since 2018 TCJA) |
| Moving expense deduction | No | No (except active military) |
| "Gross-up" common? | Sometimes | More common |
| Clawback typical? | Yes (1–2 years) | Yes (1–2 years) |
| Typical amount | $5,000–$50,000+ | $3,000–$20,000 |
Before 2018, employees could deduct qualifying moving expenses, making relocation bonuses partially offset. The TCJA eliminated this deduction for everyone except active-duty military, so both types are now equally taxable.
Tax Planning Tips
Ask for a "gross-up." Some employers will increase the sign-on bonus to cover the tax, so you receive your target amount after taxes. On a $20,000 target, a grossed-up bonus would be approximately $30,000 — you receive $20,000 net, and the employer covers the $10,000 in taxes.
Time it strategically. If you're starting a new job near year-end, ask whether the bonus can be paid in January. This defers the tax liability and gives you a full year before it's owed.
For the general overview of bonus taxes, see How Bonuses Are Taxed in 2026. For strategies to reduce the tax impact, read How to Reduce Tax on Your Bonus. And for comparing bonus types, check Stock Bonus vs Cash Bonus — Tax Comparison.
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