While bonuses are subject to income taxes, they don’t simply get added to your income and taxed at your top marginal tax rate. Instead, your bonus counts as supplemental income and is subject to federal withholding at a 22% flat rate.

How do I report bonus income?

A cash bonus is treated similarly to wages, and is taxed as such. You will report the bonus as wages on line 1 of Tax Form 1040.

Is Box 1 on W-2 gross or net?

The amount in Box 1 will generally be the “YTD Gross” under the Summary section of your final earnings statement, minus any pre-tax deductions such as health/dental/vision insurance, flexible spending accounts and retirement and tax deferred savings plans, etc.

Do you have to report a bonus on your W-2?

All payments from an employer to an employee should be treated as wages and included in the employee’s W-2. It doesn’t matter whether it’s regular pay or a bonus. However, there is a way to report the bonus correctly on your tax return, in spite of your employer’s error.

How is income tax withholding calculated for bonuses?

Aggregate method: Your income tax withholding is calculated as if your bonus was added to one of your regular paychecks. Flat percentage method: The IRS allows employers to simply withhold 22 percent from each employee’s bonus for income tax. That is in addition to the Social Security and Medicare taxes as well as any state income tax.

Can a bonus be reported as regular pay?

Your employer is reporting the bonus incorrectly. All payments from an employer to an employee should be treated as wages and included in the employee’s W-2. It doesn’t matter whether it’s regular pay or a bonus. However, there is a way to report the bonus correctly on your tax return, in spite of your employer’s error.

When to file a new tax form for your bonus?

If they use the aggregate amount, you may consider filing a new Form W-4 shortly before the bonuses come out. By increasing your withholding allowances, you’ll have less tax withheld from the bonus. If you decrease your withholding allowances, your employer will withhold more.