How To Calculate Payroll Taxes On A Bonus


When your company pays you a bonus, it is done to show you how much your efforts are appreciated. No matter how much in payroll taxes is taken out of your bonus, it is still nice to receive extra money that you did not have to work for. But depending on how your employer gives you your bonus, there may not be much left to spend when you get that bonus check in your hands.

Two Ways To Pay A Bonus

A company can either include a bonus as part of an employee’s regular pay, or the company can issue a separate bonus check. The IRS prefers if companies issue separate bonus checks because bonuses are taxed differently than standard wages. If your bonus is put in as part of your regular pay, it will be taxed less than if it were a separate bonus checks. Most companies follow the law and issue separate bonus checks. But you might get lucky and work for a company that likes to reward employees while taking chances at the same time.

Money Off The Top

The amount of money that your company must take off the top (subtract from your earnings) of your bonus check changes year to year and it is a uniform number for every state. For example, if the rate is 30 percent, then your company must take 30 percent of your bonus check right off the top and send that money to the IRS.

If your state has an income tax, then usually bonus checks are taxed the same as standard income. You will want to check with your state’s department of taxation to see if you should expect extra money to be taken off the top and sent to the state.

Social Security and Medicare

The next amount of money that gets taken from your bonus check in taxes is based on the current tax rates for Social Security and Medicare. Your human resources or payroll department can give you those two rates that you would add together and then deduct from your pre-tax bonus amount.

Standard Federal Income Tax Rate

Your human resources department or the IRS can let you know how much you pay in standard income tax per pay period. This amount is also deducted from the pre-tax amount of your bonus.

Miscellaneous Deductions

A bonus check usually does not have deductions such as a Christmas club or medical insurance taken out of them. This is a small comfort to offset the amount that is automatically removed in taxes.

When you get a bonus check, you feel appreciated and valued by your company. It is important to remember that your company has nothing to do with the significant amount of taxes you have to pay on that bonus. Before you go spending that bonus check based on the amount of bonus you were told you were getting, remember to consider the taxes and try to get a more accurate amount to avoid bouncing any checks.