How should I tax bonuses?

Question

I am in charge of the payroll which is done through a third party company. This company also files and reports the necessary withholding information. My boss will be giving bonuses shortly which I will cut a check inhouse for. Should I withdraw taxes from the amount since I normally do not report withholding information?

So if I withdraw taxes who reports it.

Answer 1

It doesn't matter if you don't personally report the information. But you are responsible for processing it which means you need to be using the correct rates. Bonuses are considered supplemental wages and should be taxed at 25% for the federal withholding. I believe CA supplemental rate is 8%. You'll need to check with you your third party payroll company to find out how to deduct the tax. Some places the tax is tied to certain codes, others you have to manually select the tax. Check out this part of the IRS website. Scroll down the table of contents to bullet point 7 and click on Supplemental Wages.

http://www.irs.gov/publications/p15/ar02.html#d0e1560

Answer 2

You will withhold 25% for federal taxes. You'll also withhold state taxes, but the amount depends on your state - and depending on your state, there could be additional taxes to withhold. Also, social security and medicare need to be withheld.

It would be a lot cleaner to just have the third party payroll company do the checks. If you do withhold the money, you'd have to make the proper deposits of it (which might not be as simple as it might sound). In any case, if you write the checks, then you'd have to give the info on the withholding amounts to the payroll company or the W-2's will be messed up when they do them, since they wouldn't show the bonuses or the withholding. You'll also have to calculate and pay the employer taxes on these amounts - and ensure that they fit in with the taxes on the payments from the third party checks from that period.

I'd VERY STRONGLY suggest that you have the payroll company write the bonus checks. You really don't want to deal with the aftermath if you do it. If your boss insists that the bonus checks to be from your company account, one way to handle it would be to let the third party payroll company cut checks for the amount, but don't distribute the ones from the payroll company, void those and write a check fron the company account for that same net amount to the employees. That way the proper taxes would be taken out and reported, your employer taxes would be properly calculated, and you'd avoid more headaches than you can imagine. I'm assuming that the payroll company writes checks on your company account, sends them to you and you distribute them - a business I work with uses Paychex, and that's how it's handled.

Answer 3

I even have a debt with the commonwealth.. $17 to centerlink however i'm now pondering that a debt to the commonwealth may additionally comprise a scholar fiscal complement mortgage and hecs expenses.. and i've each. So if you happen to owe the ATO for both of those factors that might give an explanation for the debt to the commonwealth.. Regardless you're going to nonetheless acquire your tax bonus, for the reason that all people will get it it doesn't matter what their money owed are or else it might defeat the intent of the stimulus

Answer 4

IRS standard supplemental federal tax rate for bonuses is 25%, plus whatever your state and or local rates are. download a circular E pub 15 from www.irs.gov - has all payroll tax info you'll need for manual paychecks

Answer 5

The third party should know how to handle it. Bonuses in the US are typically taxed at around 40%. I would withdrawl taxes, you owe a portion too.