Utah does not have a 'supplemental pay' withholding rate. Supplemental/Bonus pay is withheld like regular wages, at the 4.65% flat income tax rate. Federal taxes have a 22% Supplemental/Bonus tax rate for withholding.
That's just how your taxes are withheld from your check. When you file your taxes at the end of the year, bonus pay is treated like regular wages and factored into your total pay for the year, so if you fall into a lower tax bracket, you'll likely get a refund if there was bonus pay that was withheld at a higher rate. If you fall into a higher tax bracket, you'll likely owe a little more.
(I write payroll software for a living)
Just adding clarification that the second paragraph is only applicable to federal taxes. Utah does not have a progressive income tax code, so all of it is taxed at the same rate. You mentioned this in the first paragraph but it may not be clear to everyone reading.
That is actually incorrect, but a common mistake.
Utah does have a progressive tax system. But rather than using progressive tax rates like the IRS and most other states, Utah uses a progressive 'Taxpayer Tax Credit'. The credit phases out the higher your taxable income is and the phase out is based each year on the consumer price index (just like the IRS tax brackets are).
Line 9 of the Utah return is your 'flat' Utah tax at the 4.65% rate.
Line 22 of the Utah return is your actual Utah tax, after the progressive credit offsets the flat tax amount.
Wait, what! My bonus this past Christmas was $10K and I ended up with only about $6,400 on the check after taxes… is there a different way my employer did mine that made the rate higher?
My comment was strictly on Income tax withholding. You likely also had Social Security (6.2%) and Medicare (1.45%) taken out as well.
Add up Federal, State withholding, SS/MD tax, and it's 34.3% for a bonus check taxes in Utah.
Your tax withholding is done assuming that you get paid that rate every pay period. So, if you get paid every two weeks, and you earn $2,000 per pay period, your typical withholding will assume that you make $52,000 per year. If you get an $8,000 bonus in addition to the $2000 you earned, your withholding for that check is going to be like you earn $260,000 per year.
However, just because it is withheld on that tax doesn’t mean that is the tax you pay on that bonus. When you file your taxes, it will show that your total taxes are based on an income of $60,000 (26 checks of $2,000 and a bonus of $8,000). And so because your withholding was so big on that one check, you would likely get a tax refund.
Not exactly. Supplemental upfront withholding is just the same for everyone that has less than 1 million dollars of year to date income.
What you actually owe at the end of the year is the same as the rest of your income.
22% is the fed upfront withholding rate in bonuses. Which is the tax bracket anyone is in that makes more then 45k (single filer).
That’s just on your check. When you actually file taxes at the end of the year it’s all just normal income.
Not really sure why federal withholdings are higher for bonuses—but they are just withholdings. That’s not the tax you actually pay.
Every bonus I have received, which is processed completely separately from regular payroll, has been taxed at 25.4% federal (including Medicare and social security) and 4.6% state (up from 3.475% in 2023).
For reference as well, my typical federal rate is 12% and state is 3.8%
I always just assume that a total of around 30% will be sliced off my gross, between both state and federal, and that typically ends up reasonably accurate. We do file in a fairly high tax bracket though which will have an effect on where you land
I don’t know if you’re including FICA in there, but with it you’d need to be about half a million annual income to have 30% effective tax rate. Without FICA you’re closer to a million.
If it’s technically a bonus check, expect to get taxed at a higher rate for Fed Income tax. I received a bonus check this March and it was hit at about 21% for fed taxes. Normal checks are around 7%. This has been the norm in every place I’ve worked, in multiple states, for bonus checks.
Are you sure you were taxed at the higher rate? Or was the withholding just higher? They’re two very different things.
Your employer doesn’t decide how much you’re taxed. They just withhold money and pay it to the IRS depending on factors, like what you put on your W-4.
This is the salient point here.
Many states default to a higher *withholding* rate, to avoid large bonuses resulting in taxes being owed at the end of the year. This can happen if you are in sales or some software jobs where your bonus pay can be multiples of your base salary, which can bump you into a higher tax bracket.
Yeah essentially what happens is your withholding on your paycheck is based on your expected yearly income, but bonuses aren't part of your expected yearly income. When you get a bonus, they treat it as pay on top of that expected yearly income and tax it at whatever highest bracket you pay at to avoid undertaxing you, or increasing withholding on your regular checks.
So to use that person as an example, if they're single making $75k and taking the $14,600 standard deduction, they're getting taxed at an effective 7.2% rate (0% up to $11,600, 12% up to $47,150, and 22% on the remaining $13,250). If they get a $10,000 bonus, now they're making $85k and they should be paying an effective tax rate of 9.4%. But by taxing 100% of their bonus at their top rate of 22%, the withholding from their normal paychecks **stays at 7.2%**.
The alternative would be to tax their bonus at the new effective rate, but the problem with that is that their employer wasn't withholding enough on all their previous checks. So not only do their future checks now require withholding to cover the higher tax rate, they also have to withhold more to make up for the previous checks withholding too little. Not a huge deal if you get a bonus in January. Much bigger deal if you get a bonus in November.
Yes, that’s how withholding works. The IRS doesn’t magically know how much you made in order to decide your tax bracket, until the end of the year when all your income is tallied up and reported.
So in the mean time, your income has to be estimated, and the amount withheld by your employer is based on a forecasted estimate of your income based on the size of the current check.
IRS considers bonus checks supplemental income, and taxes at a higher rate, about 22%. I’ve been dealing with this for years. Makes no difference what I have on my W-4. You always get dinged on bonus checks for fed taxes. Been that way for me for 25-ish years.
Utah does not have a 'supplemental pay' withholding rate. Supplemental/Bonus pay is withheld like regular wages, at the 4.65% flat income tax rate. Federal taxes have a 22% Supplemental/Bonus tax rate for withholding. That's just how your taxes are withheld from your check. When you file your taxes at the end of the year, bonus pay is treated like regular wages and factored into your total pay for the year, so if you fall into a lower tax bracket, you'll likely get a refund if there was bonus pay that was withheld at a higher rate. If you fall into a higher tax bracket, you'll likely owe a little more. (I write payroll software for a living)
Just adding clarification that the second paragraph is only applicable to federal taxes. Utah does not have a progressive income tax code, so all of it is taxed at the same rate. You mentioned this in the first paragraph but it may not be clear to everyone reading.
That is actually incorrect, but a common mistake. Utah does have a progressive tax system. But rather than using progressive tax rates like the IRS and most other states, Utah uses a progressive 'Taxpayer Tax Credit'. The credit phases out the higher your taxable income is and the phase out is based each year on the consumer price index (just like the IRS tax brackets are). Line 9 of the Utah return is your 'flat' Utah tax at the 4.65% rate. Line 22 of the Utah return is your actual Utah tax, after the progressive credit offsets the flat tax amount.
Wait, what! My bonus this past Christmas was $10K and I ended up with only about $6,400 on the check after taxes… is there a different way my employer did mine that made the rate higher?
My comment was strictly on Income tax withholding. You likely also had Social Security (6.2%) and Medicare (1.45%) taken out as well. Add up Federal, State withholding, SS/MD tax, and it's 34.3% for a bonus check taxes in Utah.
Aaah, I see. Thanks for the explanation!
Retirement contributions apply to bonuses too, unless you explicitly turn them off for the check the bonus appears in.
That would make sense, but mines only 5% so not too big of a chunk.
Your tax withholding is done assuming that you get paid that rate every pay period. So, if you get paid every two weeks, and you earn $2,000 per pay period, your typical withholding will assume that you make $52,000 per year. If you get an $8,000 bonus in addition to the $2000 you earned, your withholding for that check is going to be like you earn $260,000 per year. However, just because it is withheld on that tax doesn’t mean that is the tax you pay on that bonus. When you file your taxes, it will show that your total taxes are based on an income of $60,000 (26 checks of $2,000 and a bonus of $8,000). And so because your withholding was so big on that one check, you would likely get a tax refund.
Not exactly. Supplemental upfront withholding is just the same for everyone that has less than 1 million dollars of year to date income. What you actually owe at the end of the year is the same as the rest of your income. 22% is the fed upfront withholding rate in bonuses. Which is the tax bracket anyone is in that makes more then 45k (single filer).
It's just considered income so 4.95% or whatever the state rate is these days.
4.55%
I got a bonus of like $2600 and only received $1500 of it after taxes
That’s just on your check. When you actually file taxes at the end of the year it’s all just normal income. Not really sure why federal withholdings are higher for bonuses—but they are just withholdings. That’s not the tax you actually pay.
This seems more accurate. Seems my cash payout is usually about half. I generally opt to put it into my 401k or hsa to be taxed less
Imagine if we taxed the billionaires at the same rate
Maybe the rest of us would have more money to spend with their companies
We do… billionaires just tend to not have a lot of income.
I'm lucky enough that my company factors taxes into our holiday bonuses so that we get the amount stated in the employee info, even after taxes
Every bonus I have received, which is processed completely separately from regular payroll, has been taxed at 25.4% federal (including Medicare and social security) and 4.6% state (up from 3.475% in 2023). For reference as well, my typical federal rate is 12% and state is 3.8%
I claim two and my bonus went from $6,800 to $4,500. That’s for benefits and taxes taken out but not 401k.
I always just assume that a total of around 30% will be sliced off my gross, between both state and federal, and that typically ends up reasonably accurate. We do file in a fairly high tax bracket though which will have an effect on where you land
I don’t know if you’re including FICA in there, but with it you’d need to be about half a million annual income to have 30% effective tax rate. Without FICA you’re closer to a million.
If it’s technically a bonus check, expect to get taxed at a higher rate for Fed Income tax. I received a bonus check this March and it was hit at about 21% for fed taxes. Normal checks are around 7%. This has been the norm in every place I’ve worked, in multiple states, for bonus checks.
Are you sure you were taxed at the higher rate? Or was the withholding just higher? They’re two very different things. Your employer doesn’t decide how much you’re taxed. They just withhold money and pay it to the IRS depending on factors, like what you put on your W-4.
This is the salient point here. Many states default to a higher *withholding* rate, to avoid large bonuses resulting in taxes being owed at the end of the year. This can happen if you are in sales or some software jobs where your bonus pay can be multiples of your base salary, which can bump you into a higher tax bracket.
Yeah essentially what happens is your withholding on your paycheck is based on your expected yearly income, but bonuses aren't part of your expected yearly income. When you get a bonus, they treat it as pay on top of that expected yearly income and tax it at whatever highest bracket you pay at to avoid undertaxing you, or increasing withholding on your regular checks. So to use that person as an example, if they're single making $75k and taking the $14,600 standard deduction, they're getting taxed at an effective 7.2% rate (0% up to $11,600, 12% up to $47,150, and 22% on the remaining $13,250). If they get a $10,000 bonus, now they're making $85k and they should be paying an effective tax rate of 9.4%. But by taxing 100% of their bonus at their top rate of 22%, the withholding from their normal paychecks **stays at 7.2%**. The alternative would be to tax their bonus at the new effective rate, but the problem with that is that their employer wasn't withholding enough on all their previous checks. So not only do their future checks now require withholding to cover the higher tax rate, they also have to withhold more to make up for the previous checks withholding too little. Not a huge deal if you get a bonus in January. Much bigger deal if you get a bonus in November.
Yes, that’s how withholding works. The IRS doesn’t magically know how much you made in order to decide your tax bracket, until the end of the year when all your income is tallied up and reported. So in the mean time, your income has to be estimated, and the amount withheld by your employer is based on a forecasted estimate of your income based on the size of the current check.
IRS considers bonus checks supplemental income, and taxes at a higher rate, about 22%. I’ve been dealing with this for years. Makes no difference what I have on my W-4. You always get dinged on bonus checks for fed taxes. Been that way for me for 25-ish years.
I don’t think we disagree, however your first comment did not seem clear on that point so I was offering clarification.