Federal Income Tax Withholding Tables for 2025: A Guide

The percentage method bonus tax rate applies a flat 22% federal tax rate to any bonus payment under $1 million. The IRS classifies bonuses as supplemental wages, and supplemental wages are taxable. With the aggregate method, your employer adds your bonus to your regular paycheck and then withholds taxes at your normal rate based on the info you provided on your W-4. If you work for a big company, you can see how this might be more complicated for your payroll department than withholding a flat 22%.

Incentive Payments vs. Regular Wages

Understanding how bonuses are taxed can help you plan ahead and maximize your take-home pay. My end of year bonus is taxed almost at 40% when my regular bracket is 24%. I’ve read that supplemental income is taxed at a flat 22% – is that on top of my regular tax bracket? The analysis takes about 2-3 minutes depending on how complex your situation is.

We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy. If you use the wage bracket method, find the range under which the employee’s wages fall (i.e., “At least X, But less than X”). I’m trying to decide if it’s worth paying for their deluxe version to help with bonus withholding. I get bonuses from my main job but also have a side gig that complicates my taxes.

• The content on this website is provided “as is;” no representations are made that the content is error-free.
• The supplemental rate, which is different from the regular rates applied to wages, is used specifically for taxing bonuses and other forms of supplemental income.
• The tool showed me that based on my actual tax bracket and overall situation, I was over-withholding.It also reminded me to adjust my W-4 back afterward so my regular paychecks wouldn’t be affected.

The updated 2025 income tax withholding tables have new withholding amounts to adjust for inflation. Adjust your payroll tax withholding to reflect annual changes to income tax withholding tables. If you use online payroll software, the information automatically updates.

• You must use this updated Form W-4 for all new hires or employees who want to update their W-4 form.
• When you’re a Pro, you’re able to pick up tax filing, consultation, and bookkeeping jobs on our platform while maintaining your flexibility.
• Yes, bonuses are added to your total annual income and can potentially push you into a higher tax bracket.
• A bonus can never cause you to lose money by pushing you into a higher bracket.
• Your employer can choose to withhold the combined sum of the above three rates from your bonus.

Adjust Your Withholding (W-4 Form)

There are many different combinations of income and filing statuses that can easily push your bonus withholding rate to 40% or higher. All bonus money received over the $1 million threshold has a tax rate of 37%, so an employer using the percentage method will withhold 37% of that portion of the bonus for tax purposes. Backup Withholding Rate Now 24%, Bonuses 22% The bottom line — your employer withholds taxes from your bonus, just as they withhold taxes from your paycheck using one of the following two methods. Your employer withholds taxes from your bonus, just as they withhold taxes from your paycheck. Many employers offer benefits like Health Savings Accounts (HSAs) or flexible spending accounts (FSAs). Using these options can bring down your taxable income, so make sure to take full advantage of them.

State Income Tax Rates & Brackets: New Jersey

Yes, bonuses are considered taxable income and are subject to federal, state, and sometimes local taxes. Has anyone tried just asking their payroll department for a specific withholding percentage on their bonus? My company lets us choose 0%, 22%, or our regular withholding rate for bonuses if we submit the request before they process the bonus payment. One thing nobody’s mentioned – make sure your company’s payroll system can even process a temporary W-4 change just for bonus checks. Many payroll systems apply whatever W-4 is in effect on the date the bonus is processed.Also, remember that changing your W-4 doesn’t change how much tax you ultimately owe – just how much is withheld.

How to Minimize Taxable Income on Your Bonus

This is usually more accurate but less common.Remember that bonuses are ultimately just taxed as regular income – they just might be withheld at a different rate initially. So while the bonus itself isn’t taxed differently in the end, the withholding applied to it might not have been enough. The safe harbor rules include ALL withholding for the year – regular paychecks, bonuses, estimated tax payments, everything. The IRS withholding calculator can help with this, or if you want to be extra careful, setting aside 25-30% of any “extra” bonus money in a separate account for taxes gives you a nice buffer. As with any income, you have to pay state and federal taxes on your bonuses.

While you can’t completely dodge the tax on bonus, there are strategies to reduce the impact. But remember, you don’t want to make any of these moves just for the tax break. If you’re in debt, saving up your emergency fund, or know you’re about to have a kid in college, that bonus cash will come in handy even if it means the Tax Man walks away with a little more of it. I’m skeptical anything can magically fix tax withholding problems better than just adjusting your W-4 properly. Supplemental wages are taxed in one of two ways, and I’ll explore those in a little more detail below. Of course there are numerous nuances and adjustments to these basic rates based on your filing status, 401k contributions, property ownership, etc.

Is there a benefit to changing tax withholding on bonus checks to keep more money?

This allows you to track exactly how much is being withheld for federal and state taxes, as well as other deductions, directly from your bonus. You can adjust your W-4 form to ensure that enough taxes are being withheld from your regular paycheck, which may help offset withholding on your bonus. Consult a tax professional to determine the optimal withholding adjustments for your situation.

But wouldn’t having that money throughout the year be better than giving the government an interest-free loan? I’ve always heard that getting a tax refund means you messed up your withholding. Navigating payroll tax changes can be time-consuming, but you don’t have to do it alone. Our team can help you stay compliant in the face of evolving tax regulations. If you have questions about how these 2025 updates affect your business, contact our office today.

Additionally, an extra 0.9% Medicare tax is imposed on individuals earning over $200,000 annually; employers are not required to match this additional tax. If your bonus pushes you into a higher bracket or your withholding isn’t enough to cover your total tax bill, consider using part of your bonus to make an estimated tax payment. This helps you avoid penalties and reduces the chance of a surprise tax bill in April. Signing bonuses are also treated as supplemental income and subject to the same taxes as other types of bonuses.

The higher withholding helps prevent owing additional taxes later since bonuses can push you into a higher tax bracket. It also accounts for your state tax situation, which the IRS calculator completely ignores. I ended up with about $820 more in my pocket last year by using their specific W4 adjustment strategy. Just to add to what others have said about bonus taxation – I work in payroll and there’s one more thing to consider. So you’re getting hit with underwithholding at both federal and state levels potentially.