In the United States, bonuses are generally treated as supplemental wages and subject to different tax withholding rules compared to regular income. The IRS uses a flat withholding rate of 22% for federal income tax on supplemental wages, including bonuses, regardless of your top marginal tax rate.
However, it's important to note that this withholding rate represents an initial tax withholding and may not be the final tax liability on your bonus. The actual tax amount owed on your bonus will depend on your total income for the year and your overall tax situation. At the end of the year when you file your tax return, your bonus will be combined with your regular income, and the total tax liability will be calculated based on your tax bracket.
It's also worth mentioning that state and local taxes may apply in addition to federal taxes. The specific state tax rates and rules can vary, so it's important to consider the applicable state tax laws when calculating the overall tax on your bonus.
To obtain the most accurate and up-to-date information regarding taxes on bonuses in the United States, it's advisable to consult the IRS guidelines or seek advice from a tax professional who can assist you based on your specific circumstances.
Percentage Method
Under the percentage method, employers withhold a flat rate of 22% for federal income tax on supplemental wages, including bonuses. This rate applies to supplemental wages up to $1 million during the tax year. If the bonus amount exceeds $1 million, the withholding rate for the portion above $1 million increases to 37%.
It's important to note that while the initial withholding is at a flat rate, the actual tax liability on bonuses will be determined when you file your tax return, considering your overall income, deductions, and tax bracket.
Additionally, state and local taxes may also apply to bonuses, and the specific tax rates and rules can vary depending on the state or locality. Therefore, it's advisable to consider the applicable state and local tax laws when calculating the overall tax on bonuses.
For accurate and personalized information regarding the taxation of bonuses and supplemental wages, it's recommended to consult the IRS guidelines or seek advice from a tax professional who can provide guidance based on your specific circumstances.
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