I recently received a question from a reader asking why his year-end bonus was taxed so heavily.
My answer: It wasn’t taxed any differently from your regular income. It’s just that the withholding was different.
Bonuses are taxed at exactly the same rate as your normal salary/wage. The difference is that the rules for tax withholding are unique for “supplemental wages” like bonus payments.
Instead of the normal withholding rate, an amount equal to 25% of the payment is withheld for Federal income taxes. (Then the normal amounts are withheld for social security taxes, state taxes, etc.)
So if, for example, you’re in the 15% tax bracket, it’s going to look like an extra 10% of your bonus was taken out for taxes. Fortunately, you’ll get this money back as part of your refund when you file your return.
For More Information, See My Related Book:
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Taxes Made Simple: Income Taxes Explained in 100 Pages or Less It qualifies for free shipping on Amazon if purchased together with my other book, Investing Made Simple.  |
"Very easy to read and is a perfect introduction for learning how to do your own taxes. Mike Piper does an excellent job of demystifying complex tax sections and he presents them in an enjoyable and easy to understand way. Highly recommended!"
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