There’s less than two weeks left in the tax season and if you’re like the majority of taxpayers, your 2015 taxes are already e-filed. If you received a bonus last year and are expecting one for all your hard work this year you may want to understand how taxes are withheld from your bonuses when you receive them.
Federal taxes are typically withheld from your bonuses by your employer at a higher tax rate than the tax rate for your tax bracket when you receive them. But don’t worry, at tax-time when you file your taxes your actual tax rate will be based on your total income for the year, which could be lower. In fact, you may get some of what was withheld back as part of your federal tax refund when you file your taxes.
Employers typically use two methods for calculating federal tax withholdings on your bonus: the Aggregate method and the Percentage method.
Check out our bonus calculator that answers one of our most frequently asked questions and get an estimate of how much federal taxes will be withheld from your bonuses when you receive them.