Understanding Bonus Taxes: Why Your Bonus Check Looks Different

Brennan McCarthy, CFP®

Is Your Bonus Taxed at the Same Rate as Your Salary?

The short answer: Yes. However, the way your bonus is taxed can be a bit confusing. Let’s break it down.

The Bonus Tax Withholding Mystery

When you receive a bonus, you might notice that the taxes withheld are different from your regular paycheck. Why does this happen?

The Difference Lies in Withholding Rules

While your bonus is indeed taxed at the same rate as your salary, the tax withholding rules vary for bonuses. Here’s why:

Supplemental Income: Bonuses are considered supplemental income. Unlike your regular salary, which follows a consistent withholding rate based on your tax bracket, bonuses are treated differently.
Flat 22% Withholding: Employers typically withhold a flat 22% on bonus checks, regardless of your actual tax bracket. This means that a portion of your bonus is automatically set aside for taxes.

Talk to Your Accountant

To avoid any surprises during tax season, it’s essential to stay informed. Consider discussing your financial situation with your accountant throughout the year. They can help you run tax projections and ensure you’re prepared for any tax bills (or refunds) that may come your way.

Remember, understanding your bonus taxes is crucial for effective financial planning. Happy saving! 💰📊