It's almost mid-March, and there is a chance you are still waiting for your 2018 bonus. If that's the case, you must be extremely curious how much your bonus will be after taxes are withheld. Did you know that bonuses are considered supplemental wages and may be taxed at a higher rate than your regular paycheck? There are two different ways your employer may tax your bonus.
The more complicated method your employer may use, or be required to use, is the aggregate method. This method is required in the following states:
- New Jersey
- Washington DC
- Puerto Rico
When the aggregate method is used, your bonus amount will be paid to you in your standard check. It may seem exciting to be receiving a much larger check than usual, but there's a catch. You now have a larger paycheck. Your employer will have to use the standard withholding tables to calculate what your new tax rate is and it may be a more significant rate than your average rate. Using the aggregate method means there is a high chance that you will receive a smaller percentage of your paycheck and bonus than you would with the flat rate method. If you're concerned about how much your check will be with the aggregate method, use our Bonus Pay Aggregate Calculator to determine how much you will be taking home from this bonus.
A much easier method that your employer may use is the flat rate or percentage method. When calculating your bonus this way, you don't consider your regular paycheck. This is because your bonus check only includes the bonus payment, no regular wages. This method uses a flat 22% to determine how much is being withheld from your bonus only. Calculate your regular paycheck as usual. That's it! The flat rate method is a much easier method for employers and employees to calculate. Use our Bonus Pay Percent calculator to see how much you will keep from this bonus!
To compare these two methods using our PaycheckCity Bonus calculators we will compare a $6,000 bonus in Georgia. The Gross pay is $50,000 with semi-monthly payments. Using these numbers in the calculator, the net pay using the flat rate is $4,101.00. The net pay using the aggregate rate is $3,689.42. That is almost half of your original bonus!
If you earn a bonus of more than $1 million, then you must use a completely different method! Calculate the $1 million using the methods above. However, everything more than $1 million must be taxed at 37%. So, if your employer uses the percentage method and you earn a bonus of $1,100,000, the $1,000,000 will be taxed at a flat 22% while the $100,000 will be taxed at 37%.
Supplemental bonuses include commissions, tips, overtime pay, vacation pay, sick pay and more.
Don't be surprised when you finally get your bonus check; calculate your bonus now!
These free resources should not be taken as tax or legal advice. Content provided is intended as general information. Tax regulations and laws change and the impact of laws can vary. Consult a tax advisor, CPA or lawyer for guidance on your specific situation.