How to Calculate Taxes on a Bonus

Money for bonuses is withheld for income taxes.

Some employers give bonuses to their employees for work well done, signing on or other purposes. These payments are subject to federal income tax withholding in the same way that regularly scheduled payments are subject to income tax withholding. Employers may choose to withhold 25 percent of the bonus for federal income taxes, or they can use a more complicated method.

Step 1

Add the amount of the bonus to the amount of regular compensation received by the employee for the current pay period. If the employee does not have any compensation for the current period, add the bonus to the preceding pay period income. For example, if the employee makes $4,000 per month and was paid a $1,000 bonus, the total would be $5,000.

Step 2

Calculate the value of the personal allowances claimed on the employee's W-4 form. The value is found by multiplying the value of each allowance per pay period by the number of allowances claimed. For example, in 2010 the value of each monthly allowance equals $304.17 so if the employee claimed two allowances, you would multiply $304.17 by two to get $608.34.

Step 3

Subtract the value of the allowances from the total income. In this example, you would subtract $608.34 from $5,000 to get $4,391.66.

Step 4

Calculate the income tax withholding for the entire amount using the federal withholding tables found in Internal Revenue Service Publication 15. In this example, if you were single and had $4,391.66 in income subject to withholding, you would have $703.67 withheld.

Step 5

Calculate the total income tax withholding if the employee did not have the bonus included. In this example, you would calculate the withholding with only $3,391.66 in income subject to federal income tax withholding and find that $453.67 would be withheld.

Step 6

Subtract the result from Step 5 from the result from Step 4 to find the amount that will be withheld from your bonus. Finishing this example, you would subtract $453.67 from $703.67 to find that $250 would be withheld for federal income taxes.

Things You'll Need

  • IRS Publication 15

  • Calculator