Withhold 22% and boom-you’re done doing math for the day. Many employers choose the percentage method because it’s easy. If you do earn more than $1 million in bonuses in a year (we’re guessing you’re a CEO or really good at throwing a football or baseball), the tax withholding rate is 37% for any amount over $1 million. If you’re in a higher tax bracket-say the 24% or 32% bracket-you’ll probably have to cut a check to Uncle Sam come tax time. So, if you’re in a lower tax bracket, you’ll probably get a refund on those withholdings when you file your taxes. The flat 22% withholding applies to any bonuses you receive up to $1 million, regardless of what tax bracket you’re in.
Remember, bonuses are considered taxable income just like wages and salaries. It might seem like the IRS taxes bonuses at a higher rate than your normal tax rate, but the 22% is just your tax withholding, not the actual amount of taxes you’ll owe when you file your taxes. Use one that’s on your side-Ramsey SmartTax. That’ll be another 7.65%.ĭon’t settle for tax software with hidden fees or agendas. 1 And don’t forget about Social Security and Medicare taxes. When an employer uses the percentage method (also known as the flat rate method), the IRS requires them to withhold a flat 22% of your bonus to cover taxes. But hang with us-it’s really a lot simpler than it sounds. We’ll talk about that next.Įmployers have the option to withhold taxes for bonuses in two different ways: the percentage method and the aggregate method. Many employers opt to withhold 22% of your bonus, but there are actually two methods for withholding. But since they’re considered supplemental wages by the IRS, bonuses are subject to a flat 22% withholding rate, no matter which tax bracket you’re in. but not really.Īs with any income, you have to pay state and federal taxes on your bonuses.
So, what’s the deal? Are bonuses taxed higher than your regular paycheck? Well, it seems that way. If you’ve ever gotten a bonus, you’ve been there, right? After taxes, that $1,000 drops to $780. You: Woo-hoo! Let’s make it rain dollar bills! So, the conversation might go something like this.
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