The estimated tax withholdings on your normal paycheck are usually pretty accurate assuming you filled out your W-4 correctly. In many cases, this is higher than your normal withholding. However, tax withholding tables are used as if your current paycheck is a regular paycheck and assumes that you will continue to make the same, higher amount for each paycheck going forward resulting in a higher tax withholding percentage than normal.
Either way — using a flat percentage or the normal withholding — you end up having a higher percentage of taxes taken out of your bonus than you expect. As mentioned, tax withholdings are not the same as your actual taxes. If your employer takes too much out of your bonus check, you will get that money back when you file your taxes. Fee-only vs. Average credit score. Average net worth. How to increase your credit score. How to increase your net worth. Some of the offers on this site are from companies who are advertising clients of Personal Finance Insider for a full list see here.
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Personal Finance. If you receive an annual bonus, you may be surprised to see how much is taken out for taxes.
Your bonus is considered "supplemental income" by the IRS, and treated differently at tax time. Taxes will be withheld from your bonus according to the percentage method or the aggregate method. You may be able to offset some of the taxes with deductions. This article was reviewed for accuracy and clarity by Luis Rosa , an expert on Personal Finance Insider's tax review board.
See Personal Finance Insider's picks for the best tax software » At one of my first jobs, I got an annual bonus. I don't remember the numbers. Popular Articles. Best travel credit cards. Best cash-back credit cards. Today's year mortgage rates. Libby Kane, CFEI, is the Executive Editor for Personal Finance Insider , Insider's personal finance section that incorporates affiliate and commerce partnerships into the news, insights, and advice about money Insider readers already know and love.
For , she is a member of the Insider Committe, a cross-team focus group working on making Insider an even better place to work. Before joining the company in March , she was the associate editor at LearnVest, covering personal and behavioral finance. In September , she helped launch Insider Netherlands in Amsterdam. She's always interested in research, charts, and people: new and interesting research, compelling charts and other visuals, and people who are willing to share the details of their impressive financial accomplishments and strategies.
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Loading Something is loading. The 1. Meeting your tax liabilities When it comes to actually paying taxes on your bonus, your employer has two options: the percentage method or the aggregate method. Lowering your tax liabilities While you can't avoid paying taxes on your bonus entirely, you can use your bonus funds wisely to reduce how much you'll owe at tax time. All you need to know is yourself Just answer simple questions about your life, and TurboTax Free Edition will take care of the rest.
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