How To Calculate Payroll Taxes on a Bonus

Receiving an offer with a very big salary is sometimes just not enough to determine your actual income. There are actually employees who seem to be at a loss when determining the exact bonus that they will be receiving because of too many taxes to be deducted.

It is important to know how much will be deducted from your 13th-month pay so that you will know the exact amount of money you will receive on payday. Not knowing the precise amount can sometimes give you a hard time budgeting and saving money because of the taxes being deducted from your salaries and bonuses. There are times when your money will be deducted by 1,000, then the next is 2,000; in other words, the deductions can fluctuate. This article will help you calculate payroll taxes on a bonus.

  • The checks that you receive for your bonuses are also called supplemental wages. These are usually given by the end of the year depending on your boss. The 13th-month pay is usually given by employers to show appreciation to their employees.
  • Your bonus checks are actually taxed, so don’t be surprised. There is a flat-rate of 25% due to federal taxes. You also have a state withholding tax. The amount will depend on the state your company is at. You can actually increase your withholdings on your monthly checks before receiving your bonus. This will serve as an adjustment for the high taxes that will be deducted from your bonus check. Another alternative is to increase the amount of withholding tax after your receive your bonus. Unfortunately, these solutions will only work for the 13th month pay or for year-end bonuses.
  • There are some employers willing to do a “Gross-Up” in which the checks for your bonus are issued separately. The net pay is equal to the amount of the bonus, therefore there is no deduction. In this scenario, the employer is the one who pays all the taxes but your bonus is added to your earnings.
  • There is also a method called the aggregate method. This is more favorable to most employees than the flat rate method. In this method, your check is paid with your usual monthly check so it is calculated depending on the withholdings associated with your regular check. The treatment of bonus-like regular earnings will depend on the software payroll your employer is using, which may place you in a higher tax bracket.

When you are calculating, make sure that you’re strictly following the guidelines and rules of the IRS. In case you are unsure and confused about the way your bonus is being taxed, then surf the Net for online resources that can provide you with the help you need in computing. Or better yet, consult your company’s payroll department for further inquiries, since they are much more knowledgeable about these matters. If they don’t have the answer, at least they will provide you information as to where you can ask and other sources of information. It is better to know this stuff so that you will be able to determine the exact bonus amount and you can adjust your tax deductions.


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