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How are bonuses taxed? #taxes #taxplanning #taxes
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Similar to how a portion of your regular paycheck is withheld by your employer to prepay your taxes, the same applies to your bonus check. The funds withheld from your bonus are then sent to the IRS on your behalf, a process commonly known as tax withholding.
Employers have two options to calculate tax withholding on bonuses: the percentage method or the aggregate method. This video focuses solely on the percentage method. Under this method, the employer must distinguish the bonus from your regular wages and apply a withholding rate of 22 percent to any supplemental wages, such as bonuses, up to $1 million for the tax year. If your bonus exceeds $1 million, any amount above this threshold will be subject to a higher withholding rate of 37 percent.
Employers have two options to calculate tax withholding on bonuses: the percentage method or the aggregate method. This video focuses solely on the percentage method. Under this method, the employer must distinguish the bonus from your regular wages and apply a withholding rate of 22 percent to any supplemental wages, such as bonuses, up to $1 million for the tax year. If your bonus exceeds $1 million, any amount above this threshold will be subject to a higher withholding rate of 37 percent.
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