If you received a bonus last 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 withholding on your bonus: the Aggregate method and 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.