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Bonus Tax Formula:
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Bonus pay tax withholding refers to the federal income tax withheld from supplemental wages like bonuses, commissions, and overtime pay. The IRS allows employers to use a flat withholding rate of 22% for supplemental wages up to $1 million.
The calculator uses the flat rate formula:
Where:
Explanation: The IRS mandates a flat 22% withholding rate for supplemental wage payments under $1 million. For amounts over $1 million, the rate increases to 37%.
Details: Accurate bonus tax calculation helps employees understand their take-home pay and assists employers in proper tax withholding compliance. It also helps with financial planning and budgeting for bonus income.
Tips: Enter the gross bonus amount in dollars. The calculator will compute the federal tax withholding at 22% and show both the tax amount and net bonus after tax deduction.
Q1: Is the 22% rate the same for all bonus amounts?
A: For bonuses under $1 million, yes. For amounts over $1 million, the withholding rate increases to 37% for the portion exceeding $1 million.
Q2: Are state taxes included in this calculation?
A: No, this calculator only computes federal tax withholding at 22%. State tax withholding varies by state and is additional.
Q3: Can employers use a different method for bonus withholding?
A: Yes, employers can choose to aggregate bonus with regular wages and withhold using the regular payroll method, but the flat rate method is commonly used for simplicity.
Q4: Is this the final tax I'll pay on my bonus?
A: This is the withholding amount. Your actual tax liability will be determined when you file your annual tax return, and you may receive a refund or owe additional tax.
Q5: Are there any deductions that reduce bonus tax?
A: No, the flat 22% rate applies to the gross bonus amount without considering standard deductions or exemptions.