Taxes Shrink Year-End Bonuses

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Taxes Shrink Year-End Bonuses

By Kelley R. Taylor
From Kiplinger’s Personal Finance
Question: I just got my year-end bonus, and it's a lot less than I expected because of taxes. Is there any way to avoid taxes on bonuses?
Answer: First and foremost, bonuses are taxed because they are considered taxable income. But the IRS also considers bonuses to be supplemental wages—e.g., overtime and commissions—that aren't regular wages. When your employer pays supplemental wages, they are supposed to follow payroll tax rules and withhold a portion of those wages (in this case, your bonus), for taxes.
The amount that is withheld from your bonus depends on the withholding method that your employer uses, which depends, in part, on the amount of your bonus, and how your bonus is paid....

Source: Taxes Shrink Year-End Bonuses

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