Free Bonus Tax Calculator (Percentage Method)

Employers must withhold the right amount of state and federal taxes from employee pay, including bonuses. This bonus tax calculator can help ensure you're paying employees (and the IRS) the right amount.

Just about everyone welcomes extra cash for a job well done, so if you can treat your employees to bonuses to express your gratitude, you probably do. But as an employer, you’re responsible for withholding the right amount in taxes from your employees’ paychecks—and the same thing is true of their bonuses.

Not sure what that tax rate is? A bonus paycheck tax calculator can help you find the right withholding amount for both federal and state taxes.

Percentage method vs. aggregate method

There are two ways to calculate taxes on bonuses: the percentage method and the aggregate method. The calculator on this page uses the percentage method, which calculates tax withholding based on the IRS’s flat 22% tax rate on bonuses. The aggregate method, which you’ll use if you pay supplemental and regular wages at the same time, is a little more complicated and requires you to check out the tax rates listed on IRS Publication 15.

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How to use the bonus tax calculator

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Bonus paycheck tax calculators are pretty straightforward. You just need to enter the following pieces of payroll information:

  • Your employee’s gross pay (year to date)
  • Bonus amount
  • Additional deductions (for instance, charitable contributions or 401(k) contributions)

You also need to choose your state from the drop-down menu to generate the right amount of tax withholding for your area.

You’ll check a box on the calculator if your employee is exempt from federal or state income taxes, Medicare and Social Security taxes (a.k.a. FICA taxes), or the federal unemployment tax (a.k.a. FUTA tax). Most employees do not qualify for these exemptions—if your employees don’t qualify for exemptions on their regular pay, they don’t qualify for bonus exemptions either.

Bonuses over $1 million

Bonuses or other supplemental wages that total $1 million or more are subject to a higher flat tax rate of 37%. This tax rate applies whether the amount is given as a one-time bonus or accumulated during the year.

Bonus taxes FAQ

What are supplemental wages?

Supplemental wages are any wages you pay employees beyond typical salaried or hourly pay. Bonuses, including holiday bonuses, are one of the most common types of supplemental wages, but the IRS classifies several other payments as supplemental wages too. For instance, sales commissions, sick leave, severance pay, financial awards or prizes, overtime, and tips all count as supplemental wages.

If you pay your employee their supplemental wages as a separate payment from their typical wages, you’ll calculate the tax withholding amounts on the supplemental pay differently—and that’s what the calculator on this page is for.

What is the tax rate for bonuses?

In the 2020 tax year, the federal flat tax rate for bonuses is 22%. On top of that 22%, you’ll need to deduct the typical Social Security and Medicare taxes (FICA taxes) and federal unemployment taxes (FUTA taxes). And the state tax rate for bonuses varies across the country, so make sure to select your state from the calculator’s drop-down menu to calculate state tax withholding correctly.

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The takeaway

Deducting and remitting the right amount of taxes from your employees’ bonuses saves everyone from tax-day hassles down the road—which ensures bonuses feel like perks, not a setup for an IRS entanglement.

Want help calculating taxes on your employees’ regular hourly pay, not just bonus pay? Check out this free hourly paycheck calculator.

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