This Tool Calculates How Much Your Bonus Will Be Taxed
The bonus is difficult to complain about, but the taxes are not very good. The IRS considers your bonus “spin-off” and therefore withholds it at a higher rate. If you think you will receive a bonus this year, this calculator will show you how much you can expect to keep.
Business Insider explains in detail why your bonuses are taxed so high, and it’s actually quite simple: the extra income comes with a higher tax rate. Bonuses are taxed in one of two ways: percentage or cumulative:
- Percentage Method: This is the method your employer will use if, like me, you receive your bonus money in the form of a check separately from your salary. Your company is simply withholding a flat tax of 25% to make things easier for them.
- Cumulative Method : This is the method your employer will use if your bonus is added to the regular salary. Your employer will deduct tax from your bonus plus your regular earnings as you indicate to your employer on your W-4. Since you are making more money than usual, your employer will keep more money than usual.
Note that this is just the withholding rate, not what you will actually pay in taxes. You may have a fairly small portion of your bonus withheld up front, but if you paid too much to the IRS, you will get that money back at time of taxes.
TurboTax explains that most employers use the percentage method, but Paycheckcity has a handy calculator for both. Simply enter your salary and bonus information, add any other applicable tax information, hit enter and the calculator will tell you how much you can expect to withhold.
See for yourself using the link below.
Bonus Interest Calculator | Paycheckcity