Tax Planning How Bonuses are Taxed Calculator Play Video Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by TurboTaxLisa Published Nov 29, 2022 - [Updated Mar 16, 2023] 1 min read If you received a bonus you may want to understand, “how taxes are withheld from your bonuses when you receive them?” Let’s take taxesoff your mind We’re ready to help you getyour taxes done right, Get started At the time of receipt of your bonus, federal taxes are typically withheld by your employer at a higher tax rate than your actual tax rate used when you file your taxes. But don’t worry, since your actual tax rate based on your total taxable income for the year could be lower, you may get back some of what was withheld from your bonus as part of your federal tax refund. Get started Employers typically use either of two methods for calculating federal tax withholding on your bonus: the aggregate method or the percentage method. Generally most employers chose to use the percentage method. Under tax reform, the federal tax rate for withholding on a bonus was lowered to 22%, down from the federal income tax rate of 25%. Check out our updated 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. Previous Post What Unemployment Means to Your Taxes Next Post Holiday Gift Giving and Tax Deductions for Business Gifts Written by Lisa Greene-Lewis Lisa has over 20 years of experience in tax preparation. Her success is attributed to being able to interpret tax laws and help clients better understand them. She has held positions as a public auditor, controller, and operations manager. Lisa has appeared on the Steve Harvey Show, the Ellen Show, and major news broadcast to break down tax laws and help taxpayers understand what tax laws mean to them. For Lisa, getting timely and accurate information out to taxpayers to help them keep more of their money is paramount. More from Lisa Greene-Lewis Follow Lisa Greene-Lewis on Twitter. 27 responses to “How Bonuses are Taxed Calculator” This year I received a one-time bonus, a severance package, a vacation buy out, relocation assistance, a signing bonus, and an annual Manager Incentive Plan bonus. This totaled $187K above my normal salary. Of these sources of supplemental wages, the only one I expect to see again is the annual MIP bonus (~$20K annually). Uncle Sam took me to the cleaners (at least what has been withheld). How do I income average over 5 years in Turbo Tax so that I’m not taking as big of a hit this year, and does it even make a difference? My base salary is about $125K. Alison, Matt & Patrick Nguyen are correct. There are a lot of misleading blog-posts out there, especially by Intuit, that lead people to believe, that, supplemental income such as bonus checks are taxed differently than regular wages. It’s the WITHHOLDING, not the actual tax liability. Look at a 1040 or a W2. Is there a box for bonus/supplemental income? The net amount in your pocket will be the same either way – after you file your return. That does not suggest that you should ignore choosing the more ideal method of withholding calculation for your individual tax situation to keep from giving Uncle Sam an interest free loan. The wording in the bonus calculator is incorrect. It says that bonuses “may be taxed at a higher rate” or “will be taxed at a flat 25% rate.” This is incorrect. The TAX WITHHOLDING is different, but the actual TAX is calculated when the return is filed. Hello, I earn $250K annually (w2) and received a $80,000 contract signing bonus. I am told my net bonus will only be $42,266 after taxes. This seems wrong to me. I live in New York State. Larry, Welcome to NYS. Highest taxes lowest wages… My employee claim exempt and have the bonus payout. Should we withhold as flat rate for tax? Hello! I am a school teacher at a school that is closing. The school will be paying out my entire summer pay in one check. I am concerned that the tax withholding will eat into the funds that I need to sustain my household. I am in the 25% tax bracket in my pay. The lump payment will be for an entire month’s pay (two payments). What would be a “safe” amount to increase my deductions to for this payment?? Hi, I will receive a relocation bonus $20K from future employer. I have an option to get that bonus now (currently live in CA) or later (when I will move to WA) – the employer is in WA. Does it make sense to wait till I move to WA before accepting the bonus (in terms of paying less state tax)? For purpose of this calculation we can use annual base salary at $160K+ (excluding this bonus, etc.)… Please advice! Thanks in advance Please this is my first time am filing, i only want to put my Wages and Federal Tax W/H…. I don’t want to include Soc Sec Wages and Medicare Tax W/H… Hope it won’t stop my payment.. Can I claim the money that I have sent to a relative that is in TDC ? I purchased a travel trailer in Delaware with a bank loan. I have paid my Pennsylvania state sales tax for the purchase. I have been told that if it has a bathroom etc it is eligible for a tax deduction is this true ? A travel trailer with a kitchen and a bathroom will qualify as a second home, and the loan interest would be deductible as mortgage interest. If your loan company does not report the interest on form 1098, TurboTax has a box on the screen titled “Tell Us More About Your Loan from …”. Check the box “I did not receiva a 1098. Enter the amount of the interest you paid on the next screen, then Yes on the Was This a Seller-Financed Loan? You can then enter the bank’s information on the next screen. You may need to request the bank’s Federal ID number from the bank if it is not on any of the paperwork you have from the bank. Mary Ellen Thank You I have a 17 yr old daughter who father has managing conservitorship of however she has lived in my home for 2 yrs now. Which i can prove with school records and medicaid. Her father hasnt lived in our city in over a yr n isnt supporting her finacally at all. He claims he can claim her on his 2013 taxes. There is nothing in our court documents stating anything regarding taxes. Can i claim her this yr? Or does he have to.? You should have all rights to claim her. she lives with you. do your taxes before him and once he does his taxes, he wont be able to claim her cause you already did. good luck I am 63 and thinking of retiring next year and have a small annuity ($20,000) which has been tax deferred. How will it affect my taxes if I withdraw it all to pay off a couple of bills so I will be debt free? Hi John, You will be taxed on the amount withdrawn and it will be added to any other income. If your contributions to the plan were included in your gross income before, then part of the distributions may be excluded from income. Here is more information on the taxation of pensions and annuities http://www.irs.gov/taxtopics/tc411.html Thank you, Lisa Greene-Lewis Will I be able to claim my son this year? He moved to Florida in May Hi Tom, Whether you can claim your son depends on a few key factors: -Age -Support -Residency -Relationship Please read more information here http://blog.turbotax.intuit.com/2013/11/22/who-qualifies-as-a-dependent-on-your-tax-return/ Thank you, Lisa Greene-Lewis We received a lease bonus check from Gas and Oil company of 60 thousand, does this just get added to our yearly income? How much tax would I expect to pay on $60.000, when our family only makes 30,000 a year with one dependent under age of 17, Thank you. Hi Susan, Your lease bonus check would be added to your total yearly income. You should receive a 1099-misc. I don’t know all of your tax deductions to determine your taxable income, but you would be taxed at a higher tax rate based on both your regular income and the lease bonus income. Please see this article for 2013 tax rates https://turbotax.intuit.com/tax-tools/tax-tips/IRS-Tax-Return/2013-Federal-Tax-Rate-Schedules/INF12044.html Thank you, Lisa Greene-Lewis Is this true? Would love to see a calculator for the opposite. Ie., you received regular monthly or quarterly bonuses. How much will you get back if your employer uses the aggregate method and your tax rate for each bonus period was significantly higher than your regular tax rate? I get paid every 2 weeks ? Way to go for perpetuating the myth that bonuses are taxed differently than regular income. The word you are looking for is “withheld,” not taxed. Great point Alison. Your Tax is the same with either method. The difference is just how much you owe or get in a refund at the end of the year. The Aggregate method is the best way for you to end up owing a small amount. This is the ideal situation for most people. It really is bad advice to suggest that the flat 25% is somehow good for people or might save them something. Browse Related Articles Income and Investments Bonus Time: How Bonuses Are Taxed and Treated by the IR… Tax Planning Holiday Bonus Season: How Your Holiday Bonus is Taxed Income and Investments Bonus Round: 5 Tips for Your Work Bonus Work How Bonuses Received as a Contractor Are Taxed Tax Tips The Tax Implications of Receiving a Holiday Bonus Self-Employed How Holiday Bonuses are Taxed for Contract Workers Life Lottery Calculator 401K, IRA, Stocks What Happens to Employees When a Company Goes Public? Tax Tips About Withholding on Retirement Withdrawals Tax Planning Save With These 8 End-of-Year Tax Tips
This year I received a one-time bonus, a severance package, a vacation buy out, relocation assistance, a signing bonus, and an annual Manager Incentive Plan bonus. This totaled $187K above my normal salary. Of these sources of supplemental wages, the only one I expect to see again is the annual MIP bonus (~$20K annually). Uncle Sam took me to the cleaners (at least what has been withheld). How do I income average over 5 years in Turbo Tax so that I’m not taking as big of a hit this year, and does it even make a difference? My base salary is about $125K.
Alison, Matt & Patrick Nguyen are correct. There are a lot of misleading blog-posts out there, especially by Intuit, that lead people to believe, that, supplemental income such as bonus checks are taxed differently than regular wages. It’s the WITHHOLDING, not the actual tax liability. Look at a 1040 or a W2. Is there a box for bonus/supplemental income? The net amount in your pocket will be the same either way – after you file your return. That does not suggest that you should ignore choosing the more ideal method of withholding calculation for your individual tax situation to keep from giving Uncle Sam an interest free loan.
The wording in the bonus calculator is incorrect. It says that bonuses “may be taxed at a higher rate” or “will be taxed at a flat 25% rate.” This is incorrect. The TAX WITHHOLDING is different, but the actual TAX is calculated when the return is filed.
Hello, I earn $250K annually (w2) and received a $80,000 contract signing bonus. I am told my net bonus will only be $42,266 after taxes. This seems wrong to me. I live in New York State.
Hello! I am a school teacher at a school that is closing. The school will be paying out my entire summer pay in one check. I am concerned that the tax withholding will eat into the funds that I need to sustain my household. I am in the 25% tax bracket in my pay. The lump payment will be for an entire month’s pay (two payments). What would be a “safe” amount to increase my deductions to for this payment??
Hi, I will receive a relocation bonus $20K from future employer. I have an option to get that bonus now (currently live in CA) or later (when I will move to WA) – the employer is in WA. Does it make sense to wait till I move to WA before accepting the bonus (in terms of paying less state tax)? For purpose of this calculation we can use annual base salary at $160K+ (excluding this bonus, etc.)… Please advice! Thanks in advance
Please this is my first time am filing, i only want to put my Wages and Federal Tax W/H…. I don’t want to include Soc Sec Wages and Medicare Tax W/H… Hope it won’t stop my payment..
I purchased a travel trailer in Delaware with a bank loan. I have paid my Pennsylvania state sales tax for the purchase. I have been told that if it has a bathroom etc it is eligible for a tax deduction is this true ?
A travel trailer with a kitchen and a bathroom will qualify as a second home, and the loan interest would be deductible as mortgage interest. If your loan company does not report the interest on form 1098, TurboTax has a box on the screen titled “Tell Us More About Your Loan from …”. Check the box “I did not receiva a 1098. Enter the amount of the interest you paid on the next screen, then Yes on the Was This a Seller-Financed Loan? You can then enter the bank’s information on the next screen. You may need to request the bank’s Federal ID number from the bank if it is not on any of the paperwork you have from the bank. Mary Ellen
I have a 17 yr old daughter who father has managing conservitorship of however she has lived in my home for 2 yrs now. Which i can prove with school records and medicaid. Her father hasnt lived in our city in over a yr n isnt supporting her finacally at all. He claims he can claim her on his 2013 taxes. There is nothing in our court documents stating anything regarding taxes. Can i claim her this yr? Or does he have to.?
You should have all rights to claim her. she lives with you. do your taxes before him and once he does his taxes, he wont be able to claim her cause you already did. good luck
I am 63 and thinking of retiring next year and have a small annuity ($20,000) which has been tax deferred. How will it affect my taxes if I withdraw it all to pay off a couple of bills so I will be debt free?
Hi John, You will be taxed on the amount withdrawn and it will be added to any other income. If your contributions to the plan were included in your gross income before, then part of the distributions may be excluded from income. Here is more information on the taxation of pensions and annuities http://www.irs.gov/taxtopics/tc411.html Thank you, Lisa Greene-Lewis
Hi Tom, Whether you can claim your son depends on a few key factors: -Age -Support -Residency -Relationship Please read more information here http://blog.turbotax.intuit.com/2013/11/22/who-qualifies-as-a-dependent-on-your-tax-return/ Thank you, Lisa Greene-Lewis
We received a lease bonus check from Gas and Oil company of 60 thousand, does this just get added to our yearly income? How much tax would I expect to pay on $60.000, when our family only makes 30,000 a year with one dependent under age of 17, Thank you.
Hi Susan, Your lease bonus check would be added to your total yearly income. You should receive a 1099-misc. I don’t know all of your tax deductions to determine your taxable income, but you would be taxed at a higher tax rate based on both your regular income and the lease bonus income. Please see this article for 2013 tax rates https://turbotax.intuit.com/tax-tools/tax-tips/IRS-Tax-Return/2013-Federal-Tax-Rate-Schedules/INF12044.html Thank you, Lisa Greene-Lewis
Would love to see a calculator for the opposite. Ie., you received regular monthly or quarterly bonuses. How much will you get back if your employer uses the aggregate method and your tax rate for each bonus period was significantly higher than your regular tax rate?
Way to go for perpetuating the myth that bonuses are taxed differently than regular income. The word you are looking for is “withheld,” not taxed.
Great point Alison. Your Tax is the same with either method. The difference is just how much you owe or get in a refund at the end of the year. The Aggregate method is the best way for you to end up owing a small amount. This is the ideal situation for most people. It really is bad advice to suggest that the flat 25% is somehow good for people or might save them something.
