What is the tax on bonuses?

Question

Does the tax rate change? Is the only difference that a greater percentage must be withheld?
Thanks.

Answer 1

Bonuses are taxed as ordinary income. However, the withholding done at any given time is typically higher because a bonus check typically exceeds your normal earnings. At year end, all your income is added together and it does not matter if it was wages or bonuses once it's on your W-2 form. Bonuses added to your normal income can push you into higher tax brackets and cause some tax issues, so it's important that you are doing proper withholding from you wages and bonuses. If you need assistance to review and a new accountant, please feel free to contact me via http://www.SLarson.com or [e-mail]

Answer 2

KL, you have pretty much answered your own question. The only difference is, indeed, the amount that must be withheld. When you come to do your taxes, the bonus is included in the W-2 along with your regular wages. The IRS does not differentiate between wages and bonus when calculating your tax liability. This could mean a greater refund if your tax rate is less than 25% (or a correspondingly smaller amount to pay).

Answer 3

For state taxes, It depends on what state you live in. Most states treat it as regular income.

The federal government just taxes it as part of your income. It does NOT get taxed at a higher or lower percentage. It does however affect your total annual income for the year, which could cause your "tax bracket" to increase on your 1040 filing. This will make it look like it got taxed higher than other salaries, but really, from that point on, you salary should be getting taxed at a higher rate as well. This only applies if you hit a tax bracket with an higher %.

Answer 4

It does have a higher tax rate if it is classifed as a bonus. I think it's appoximately 40%

Answer 5

It is counted as income on your taxes.