irs rules on bonus pay
IRS Rules for the Tax Deduction of Bonuses. The Internal Revenue Service regards bonuses as supplemental wages, which are not regular wages. If you choose to reward your employees for their hard work with a bonus incentive, the payment is taxed according to how it is made.ubtract 1.000 from 0.3065 to get 0.6935.Then, divide the bonus amount of $1,000 by the decimal amount of 0.6935 to arrive at $1,441.96. You would pay the tax cost of $441.96 and the employee would receive $1,000.
Option 1. The employer may withhold a flat 25% for federal income taxes from the bonus payment. If the employee receives over $1 million in bonus payments in one year, the employer can withhold 35% from the amount over $1 million in addition to 25% of the first $1 million.Option 2.owever, seems to me that your bonus is not $1,200 but is $984 as $984 is what is showing up on your pay stub. As I stated before â the IRS play by the âYou can pay me now or you can pay me later rulesâ â your bonus just gets added with normal income to determine how much you owe the IRS.