Why bonuses taxed so high

That income amount would put you in the 22 percent federal tax bracket assuming you file your tax return as single or head of household. The employer would subtract the taxes already withheld from your last paycheck and take the remainder out of your bonus amount. The IRS will expect its cut of any bonus you receive. The exception to this rule is if your bonus can qualify as an employee achievement award. You might be able to avoid paying federal income taxes under the following conditions:.

The method your employer uses to calculate the federal withholding on your bonus can have a big impact on your take-home pay. If the tax withholding on your bonus turns out to be higher than necessary, you might receive a tax refund for overpayment. On the other hand, if too little money was withheld from your income throughout the year, you could wind up owing the IRS. You can reduce the risk of owing the IRS money by reviewing your W-4 withholdings.

Also, if you receive a large bonus or your financial circumstances change, it may be best to talk to a tax professional for advice. Want to lower the amount of taxes withheld from your bonus? Consider asking your employer to pay your bonus separately from your regular paycheck.

From there, you can see if your employer will calculate your tax withholding at the 22 percent flat rate the IRS allows for supplemental wages. How We Make Money. Kay Bell. Written by. Edited By Lance Davis. Edited by. Lance Davis. Lance Davis is the senior editorial director for Bankrate. Lance leads a team responsible for creating educational content that guides people through the pivotal steps in their ….

Reviewed by. Share this page. Key Principles We value your trust. The limitations are different for different types of retirement accounts. They also change from year to year. For , the limits are;. These contributions reduce your gross income by the contributed amount. You can also withdraw from an HSA to pay qualified medical expenses without incurring taxes, which makes this one of the most attractive tax-management strategies.

There are limits on how much you can contribute to your HSA. You may be able to save on taxes by asking your employer to delay paying the bonus until January. If the bonus would push your income into a higher tax bracket this year and you expect less income next year, this strategy makes considerable sense. Even if you will still be in the same tax bracket, you benefit by delaying the day you have to pay the taxes by a year.

If you itemize your deductions rather than taking the standard deduction, you can make a contribution to a charity to reduce your taxable income.

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