Question 1

How are bonuses taxed?

Accepted Answer

Bonuses are typically taxed at a flat federal supplemental rate of 22% (or 37% for bonuses over $1 million), plus state taxes and FICA taxes (Social Security and Medicare). This flat rate withholding is often higher than your effective tax rate, which is why bonuses can seem more heavily taxed than regular income.

Question 2

What is the difference between flat supplemental rate and marginal tax method?

Accepted Answer

The flat supplemental rate method applies a fixed 22% federal withholding rate to your bonus regardless of your tax bracket. The marginal method adds your bonus to your regular income and calculates taxes on the combined amount. Most employers use the flat rate method because it's simpler, but it often results in over-withholding.

Question 3

Why does my bonus seem more heavily taxed than my regular paycheck?

Accepted Answer

Bonuses are often withheld at a flat 22% federal rate, which may be higher than your effective tax rate on regular income. Additionally, if your bonus pushes your total income above certain thresholds, you may hit the Social Security wage base limit or additional Medicare tax thresholds, affecting the percentage withheld.

Question 4

Will I get a refund if my bonus was over-withheld?

Accepted Answer

Yes, if your bonus was over-withheld using the flat supplemental rate method, you'll receive a refund when you file your annual tax return. The actual tax you owe on the bonus is calculated based on your total annual income and tax bracket, not the withholding rate.

Question 5

Are bonuses subject to Social Security and Medicare taxes?

Accepted Answer

Yes, bonuses are subject to FICA taxes just like regular wages. Social Security tax (6.2%) applies up to the wage base limit ($168,600 for 2024), and Medicare tax (1.45% base, plus 0.9% additional for high earners) applies to all bonus income.

Question 6

How do state taxes work on bonuses?

Accepted Answer

State tax withholding on bonuses varies by state. Some states use a flat supplemental rate similar to the federal method, while others calculate state tax based on your total income including the bonus. States without income tax (like Texas, Florida, and Washington) don't withhold state taxes on bonuses.

Question 7

Can I reduce taxes on my bonus?

Accepted Answer

You can't avoid taxes on bonuses, but you can reduce your tax liability by contributing to pre-tax retirement accounts (like a 401(k)) or health savings accounts (HSA) if your employer allows bonus deferrals. However, most employers process bonuses separately and don't allow these deductions.

Question 8

What happens if my bonus is over $1 million?

Accepted Answer

For bonuses over $1 million, the federal supplemental withholding rate increases from 22% to 37%. This higher rate applies only to the portion of the bonus above $1 million. The first $1 million is still taxed at 22%.

Kansas Bonus Paycheck Calculator

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