State | Supplemental Tax Rate (2024) |
---|---|
Alabama | 5.0% |
Alaska | No state income tax |
Arizona | None |
Arkansas | 4.4% |
California | 10.23% on bonus and stock options, 6.6% on all else |
Colorado | None |
Connecticut | None |
Delaware | None (Recommended 5% withholding for deferred compensation) |
Florida | No state income tax |
Georgia | Varies by wage bracket Under $8,000: 2.0% $8,000 – $10,000: 3.0% $10,000.01 – $12,000: 4.0% $12,000.01 – $15,000: 5.0% Over $15,000: 5.49% |
Hawaii | None |
Idaho | None |
Illinois | None |
Indiana | None |
Iowa | 6.0% |
Kansas | 5.0% |
Kentucky | None |
Louisiana | None |
Maine | 5.0% |
Maryland | Use local tax rate (3.2% for MD residents working in non-reciprocal states) |
Massachusetts | None |
Michigan | None |
Minnesota | 6.25% |
Mississippi | None |
Missouri | 4.8% |
Montana | 5.0% |
Nebraska | 5.0% |
Nevada | No state income tax |
New Hampshire | No state income tax |
New Jersey | None |
New Mexico | 5.9% |
New York | 11.7% |
North Carolina | 4.6% |
North Dakota | 1.5% |
Ohio | 3.5% |
Oklahoma | 4.75% |
Oregon | 8.0% |
Pennsylvania | None |
Rhode Island | 5.99% |
South Carolina | None |
South Dakota | No state income tax |
Tennessee | No state income tax |
Texas | No state income tax |
Utah | None |
Vermont | 30% of federal withholding or 6% for nonqualified deferred compensation |
Virginia | 5.75% |
Washington | No state income tax |
Washington, D.C. | None |
West Virginia | Varies by wage Under $10,000: 2.36% $10,000 – $25,000: 3.15% $25,000.01 – $40,000: 3.54% $40,000.01 – $60,000: 4.72% Over $60,000: 5.12% |
Wisconsin | Varies by wage Under $12,760: 3.54% $12,760 – $25,520: 4.65% $25,520.01 – $280,950: 5.30% Over $280,950: 7.65% |
Wyoming | No state income tax |
The Bonus Pay Tax Calculator is designed to help you quickly and accurately calculate the amount of tax you’ll owe on your bonus or supplemental income. Whether you’re receiving a one-time bonus, commission, or any other form of supplemental wage, this tool simplifies the process by accounting for both federal and state-specific tax rates.
Imagine you live in California and receive a $10,000 bonus:
Bonuses and other forms of supplemental income, such as commissions, severance pay, and stock options, are an important part of compensation packages for many employees. However, unlike your regular salary, these types of income are often taxed differently, leading to confusion about how much of your bonus you’ll actually take home. Understanding how taxes are applied to bonuses can help you avoid surprises and make more informed financial decisions.
Supplemental income refers to any type of compensation you receive outside of your regular salary or hourly wages. Common examples include:
Because this income is considered separate from your regular wages, it is often subject to different tax treatment, which may result in higher tax withholdings.
At the federal level, the IRS categorizes bonuses as supplemental wages, and they are typically subject to a flat withholding rate. The current federal flat tax rate for bonuses and other supplemental income is 22%. This means that if you receive a bonus of $5,000, $1,100 will be withheld for federal taxes.
However, if your bonuses and supplemental wages exceed $1 million in a calendar year, the IRS mandates a higher withholding rate of 37% on any amount over $1 million.
Example:
In addition to federal taxes, your bonus may also be subject to state taxes, which vary significantly depending on where you live. Some states tax bonuses at the same rate as regular income, while others have special rules or flat tax rates for bonuses. Here are a few examples:
Because state tax rates vary widely, it’s crucial to know your state’s specific tax treatment of supplemental income to avoid any surprises when tax season arrives.
In some cases, the flat 22% federal withholding may not apply. For example, if your employer combines your bonus with your regular wages and does not list it as a separate payment, your federal withholding could be based on your overall income tax bracket rather than the flat supplemental rate. This may result in a higher or lower withholding depending on your total earnings.
Additionally, some states, like Vermont, apply unique rules, such as taxing a percentage of your federal withholding instead of taxing the bonus directly. For Vermont residents, this means that your state tax is tied to how much is withheld federally, making it important to correctly input federal withholding amounts when using the calculator.
Many employees are shocked when they see how much of their bonus is withheld for taxes, leading to the perception that bonuses are taxed at a higher rate than regular wages. However, bonuses are not inherently taxed more; they are simply withheld at a higher rate upfront. When you file your taxes at the end of the year, your total tax liability is calculated based on your total income, and any overpayment from bonus withholding may be refunded.
Example:
Industry | Average Bonus (% of Salary) |
---|---|
Finance | 12.3% |
Professional/Business Services | 9.2% |
Information | 8.9% |
Manufacturing | 7.5% |
Trade, Transport, and Utilities | 6.6% |
Leisure and Hospitality | 5.1% |
Construction | 4.4% |
Education and Health | 4.0% |
Other | 3.9% |
Data Retrieved From: BLS
Industry | Average Bonus (% of Salary) |
---|---|
Finance | 11.7% |
Legal | 5.0% |
Consulting | 4.9% |
Real Estate | 4.4% |
Arts & Entertainment | 4.3% |
Communications | 4.1% |
Technology | 4.0% |
Accounting | 3.5% |
Construction | 2.9% |
Insurance | 2.8% |
Retail | 2.5% |
Manufacturing | 2.5% |
Automotive | 1.9% |
Education | 1.7% |
Transportation | 1.5% |
Facilities | 1.5% |
Healthcare & Social Assistance | 1.1% |
Food & Beverage | 0.9% |
Salon & Spa | 0.7% |
Data Retrieved From: Gusto
When it comes to taxing bonuses and supplemental income, states vary widely in how they handle these payments. Some states impose a flat tax rate, while others base the tax on income brackets or don’t tax bonuses at all. Understanding your state’s specific supplemental tax rate is key to ensuring accurate calculations and avoiding any surprises when receiving your bonus.
Below, we’ll break down the different approaches states take toward taxing bonuses, including flat-rate states, no-tax states, and variable-rate states.
Flat-rate states impose a fixed percentage on bonuses and supplemental income, regardless of how much you earn. This makes it easier to predict how much will be withheld from your bonus, as the rate is consistent across all income levels.
Some key examples of flat-rate states include:
California: California applies a flat tax rate of 10.23% on bonuses and stock options. For other types of supplemental income, such as commissions or severance pay, the rate is 6.6%.
Example: If you receive a $10,000 bonus in California, you’ll owe $1,023 in state taxes for bonuses and stock options or $660 for other supplemental pay.
New York: New York taxes bonuses at a flat rate of 11.7%, one of the highest state rates for supplemental income in the U.S.
Example: A $10,000 bonus in New York would result in $1,170 in state tax being withheld.
Oregon: Oregon imposes an 8.0% flat rate on all supplemental income, including bonuses, severance pay, and commissions.
Example: For a $5,000 bonus in Oregon, you’d owe $400 in state tax.
Several states in the U.S. do not impose a state income tax at all, which means your bonus or supplemental income is only subject to federal withholding. If you live in one of these states, you won’t have to worry about state-level taxes on your bonus.
Key no-tax states include:
For residents of these states, the federal withholding rate of 22% will be the only tax deducted from your bonus.
Example: If you live in Texas and receive a $7,000 bonus, only federal tax will be withheld, amounting to $1,540 (22% of $7,000). You’ll keep the rest.
In some states, the tax rate on bonuses and supplemental income varies based on your annual gross income. These states use income brackets to determine how much tax to withhold from your bonus, similar to how regular income taxes are calculated. The more you earn annually, the higher your bonus may be taxed.
Key examples include:
Georgia: In Georgia, your bonus is taxed based on income brackets, with the rate increasing as your total annual income rises. The rates range from 2% for income up to $8,000, to 5.49% for income over $15,000.
Example: If you earn $20,000 annually and receive a $2,000 bonus, your bonus would be taxed at 5.49%, resulting in a $109.80 state tax withholding.
Wisconsin: Wisconsin applies varying tax rates to bonuses based on your annual income. Rates start at 3.54% for income up to $12,760 and increase to 7.65% for income over $280,950.
Example: If you earn $50,000 annually and receive a $5,000 bonus, your bonus would be taxed at 5.30%, resulting in a $265 state tax withholding.
West Virginia: West Virginia uses income brackets to determine bonus tax rates, ranging from 2.36% for income up to $10,000 to 5.12% for income over $60,000.
Example: If you earn $70,000 annually and receive a $3,000 bonus, your bonus would be taxed at 5.12%, resulting in a $153.60 state tax withholding.
Some states have unique rules for taxing bonuses, often tying their supplemental income taxes to federal withholding or specific local tax rates.
Vermont: Vermont has two different tax rates for bonuses. For general bonuses, a flat rate of 6% applies. However, for deferred compensation or specific types of income, Vermont uses 30% of federal withholding as the basis for the state tax.
Example: If your federal withholding is $1,000 for a bonus, Vermont would tax you $300 (30% of $1,000) for deferred compensation. For regular bonuses, if you received $2,000, Vermont would tax you $120 (6% of $2,000).
Maryland: Maryland taxes bonuses based on both state and local tax rates, with a general state rate of 3.2%. If you live in certain areas of Maryland, local tax rates can also apply, increasing the amount of tax you’ll owe.
Example: A $4,000 bonus in Maryland would result in $128 state tax (3.2%), plus any additional local taxes.
Delaware: For deferred compensation, Delaware recommends using a 5.0% state tax rate. However, other types of bonuses and supplemental income might follow different rates.
Example: A $3,000 deferred compensation in Delaware would be taxed $150 (5%).
Several states do not have specific tax rates for bonuses and instead treat them as regular income. In these states, your bonus will be taxed at the same rate as your salary or hourly wages.
Key examples include:
In these states, you’ll owe taxes on your bonus based on your standard income tax bracket, with no special rates applied to bonuses or other supplemental pay.
Example: If you live in North Carolina, your bonus would be taxed at the standard rate of 4.6%, regardless of whether it’s a bonus or regular income.
When it comes to federal taxes, bonuses and other forms of supplemental income are treated differently than your regular paycheck. Understanding how federal withholding applies to bonuses is essential for managing your earnings and ensuring that you’re not caught off guard when tax season rolls around. The federal government imposes specific rules for taxing bonuses, which can vary depending on the size of the bonus and how it’s paid out. Let’s break down these rules to clarify how much of your bonus will be withheld for federal taxes.
For most employees, the IRS treats bonuses as supplemental wages, meaning they are taxed at a different rate than your regular salary. The current federal withholding rate for bonuses and supplemental income is a flat 22%. This rate applies to all bonuses that are $1 million or less in a calendar year.
Here’s how it works:
Example: If you receive a $5,000 bonus, your employer will withhold $1,100 (22% of $5,000) for federal taxes. You’ll take home $3,900 after the federal withholding is applied.
If you are fortunate enough to receive more than $1 million in bonuses during a calendar year, the IRS imposes a higher withholding rate on the portion of your bonus that exceeds $1 million.
Here’s how it works:
Example: If you receive a $2 million bonus, here’s how the federal withholding would be applied:
Employers can choose between two different methods for calculating federal withholding on bonuses: the aggregate method and the percentage method. Each method can result in different withholding amounts, depending on how the bonus is paid.
This is the most common method and applies the flat 22% withholding rate to the bonus itself. This method is straightforward and generally results in less withholding compared to the aggregate method.
In this method, your employer adds your bonus to your regular wages to determine your total income for the current pay period. Your federal withholding is then based on your overall income tax bracket rather than the flat 22% rate. This can sometimes result in higher withholding if the combined income pushes you into a higher tax bracket.
In addition to federal income taxes, bonuses are subject to Social Security and Medicare taxes, just like your regular wages.
Social Security Tax: The current rate is 6.2% for both the employee and the employer, applied to wages up to the annual wage base limit (which is $160,200 for 2024). If your bonus, combined with your regular income, exceeds this wage base, no Social Security tax will be applied to any amount beyond the limit.
Example: If your regular salary is $150,000, and you receive a $20,000 bonus, only $10,200 of your bonus will be subject to Social Security tax, as the wage base limit is $160,200. The remaining $9,800 will not be taxed for Social Security purposes.
Medicare Tax: The Medicare tax rate is 1.45% on all wages, with no wage base limit. If your total earnings exceed $200,000, an additional 0.9% Medicare surtax is applied to the amount above $200,000.
Example: If your total wages (including bonuses) are $250,000, the first $200,000 will be subject to the regular 1.45% Medicare tax, and the remaining $50,000 will be taxed at a rate of 2.35% (1.45% + 0.9%).
Federal withholding on bonuses is designed to ensure that you pay the correct amount of taxes throughout the year, but it may not always be perfect. If your employer withholds more than necessary, you’ll have the opportunity to recoup the overpaid taxes when you file your annual tax return.
During tax season, your total income will be calculated, and if too much was withheld from your bonus, you will receive a refund from the IRS. Conversely, if not enough was withheld, you may owe additional taxes when you file.
While you can’t avoid paying federal taxes on your bonus, there are some strategies you can use to potentially reduce the amount withheld upfront:
Contribute to a 401(k): Bonuses are considered regular income for 401(k) contributions, so you can direct a portion of your bonus into your retirement account, which may reduce your taxable income.
Example: If you contribute $2,000 of your $10,000 bonus to your 401(k), you’ll only be taxed on the remaining $8,000.
Check Your Withholding Allowances: If you expect to receive a significant bonus and want to reduce the withholding, consider adjusting your W-4 form to claim additional allowances. However, this should be done cautiously to avoid under-withholding and owing taxes at the end of the year.
Understanding how bonuses are taxed can be confusing due to varying rules at both the federal and state levels. Below, we answer some of the most common questions about bonus pay taxes to help you get a clearer picture of how much tax will be withheld from your bonus and what you can expect when it comes time to file your taxes.
Bonus pay tax refers to the taxes applied to bonuses or other forms of supplemental income, such as commissions, severance pay, and stock options. Bonuses are taxed as supplemental wages, which are subject to both federal and state income taxes. At the federal level, the IRS withholds a flat 22% from most bonuses, and additional taxes may be applied at the state level, depending on where you live.
Bonuses aren’t taxed at a higher rate, but they may appear to be because of the way taxes are withheld. For most employees, the IRS requires a flat 22% withholding on bonus pay, which may seem high compared to regular paycheck deductions. This flat rate is designed to cover federal taxes upfront, but when you file your tax return, your actual tax liability will be calculated based on your total income, potentially resulting in a refund if too much was withheld.
The federal government generally applies a 22% flat withholding rate to any bonus that is $1 million or less during the calendar year. If your bonus exceeds $1 million, the portion above $1 million is taxed at a higher rate of 37%. Your employer will automatically apply the 22% withholding rate unless they use the aggregate method, which can result in different withholding amounts.
State tax treatment of bonuses varies widely. Some states, such as California and New York, apply specific tax rates to bonuses. Other states, like Texas and Florida, do not tax bonuses because they don’t have a state income tax. In states with income brackets, like Georgia and West Virginia, the tax rate may depend on your annual income.
Here are a few common approaches states take:
If too much is withheld from your bonus, don’t worry—you may receive a refund when you file your taxes. The IRS and your state tax agency will calculate your total tax liability for the year based on your entire income, including regular wages and bonuses. If the amount withheld was higher than necessary, you’ll get the excess back as part of your tax refund.
Example: If your employer withheld 22% from your bonus, but your total income for the year puts you in a lower tax bracket, you may be entitled to a refund when you file your tax return.
It’s not possible to avoid paying taxes on your bonus entirely, but there are strategies you can use to reduce the tax impact:
Many employees are surprised when their bonus is significantly smaller than expected, and this is often due to the flat 22% federal withholding and any applicable state tax. Additionally, bonuses are subject to Social Security and Medicare taxes, which further reduce the amount you take home.
Example: If you receive a $5,000 bonus, after the 22% federal withholding, you’ll take home $3,900. If your state also taxes bonuses, you may lose even more to taxes.
If you live in a state with no income tax, such as Florida, Texas, or Nevada, your bonus will only be subject to federal taxes (22%) and Social Security and Medicare taxes. This can make a substantial difference in how much of your bonus you take home compared to someone living in a state with high income taxes, like California or New York.
Example: In Florida, you’d only pay the 22% federal tax on your bonus. If you received a $10,000 bonus, you’d take home $7,800 after federal withholding (assuming no other deductions).
If your total bonuses in a calendar year exceed $1 million, the IRS requires your employer to withhold taxes at a higher rate for the portion over $1 million. The first $1 million is taxed at the standard 22%, and the portion over $1 million is taxed at 37%.
Example: If you receive a $2 million bonus, the first $1 million will be taxed at 22%, and the second $1 million will be taxed at 37%. This means $220,000 will be withheld from the first million and $370,000 from the second million, for a total withholding of $590,000.
In addition to federal and state income taxes, bonuses are also subject to Social Security and Medicare taxes. These are calculated at the same rates as your regular wages:
Example: If you receive a $10,000 bonus, $620 (6.2%) will be withheld for Social Security (assuming your total income is below the wage base limit), and $145 (1.45%) will be withheld for Medicare.
Disclaimer: The content provided on this webpage is for informational purposes only and is not intended to be a substitute for professional advice. While we strive to ensure the accuracy and timeliness of the information presented here, the details may change over time or vary in different jurisdictions. Therefore, we do not guarantee the completeness, reliability, or absolute accuracy of this information. The information on this page should not be used as a basis for making legal, financial, or any other key decisions. We strongly advise consulting with a qualified professional or expert in the relevant field for specific advice, guidance, or services. By using this webpage, you acknowledge that the information is offered “as is” and that we are not liable for any errors, omissions, or inaccuracies in the content, nor for any actions taken based on the information provided. We shall not be held liable for any direct, indirect, incidental, consequential, or punitive damages arising out of your access to, use of, or reliance on any content on this page.
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