There are several options when paying bonuses to employees; including the bonus amount on the employee's regular paycheck, creating a separate paycheck for the bonus amount only, or reporting a cash or gift bonus through a paycheck.
Once the method of paying the bonus is chosen, you must consider the taxability of bonuses. The net pay on a bonus check can drastically change based upon the selection and disbursal of taxes and whether the bonus is on the same or separate check than the regular payroll wages.
Bonus checks are subject to normal tax deductions, including state and federal taxes. However they may be subject to supplement tax rates for federal and state withholding. QuickBooks does not
automatically calculate the state or federal withholding supplemental rate on bonus wages. To calculate the supplemental rate for state or federal withholding, you must manually change the amounts calculated on the paycheck.
- There is a federal supplemental wage rate of 25% for supplemental wages identified separately from regular wages: "withhold a flat 25% (no other percentage allowed)." If the supplemental wages are more $1 million, withhold using the 39.6% rate. Source - Section 7 - Supplemental Wages of Circular E, Employer's Tax Guide .
- Some states also have supplemental wage rates, if you are unsure of the state s individual requirements for the use of supplemental rates, please contact your tax/financial advisor or your state.