Best Answer: None of the answers actually describes the correct procedure, which is a bit complicated.
First of all, in the long run you'll be taxed on the bonus as if it is normal employment income. So if you made salary of $60,000 for the year plus a $6000 bonus, your final tax would be the same as someone who earned a straight salary of $66000.
But how is it taxed when you receive it? Here is what is SUPPOSED to happen, using the figures above and a monthly pay period:
Your 'normal' salary is $5000 per month. The company will assume a period for which the bonus applies, let's say 1 year. So in effect, they will assume you actually made $5500 each month for the year. They will calculate your 'normal' tax (on the $5000),
then calculate the tax on $5500. The difference (let's say it's $100 for discussion purposes) represents the MONTHLY extra tax you should be paying, to account for the bonus. By multiplying that amount by the number of pay periods, they arrive at the total tax for the year ($1200 in my example) that you should pay on the bonus.
That results in the correct taxation of the bonus, and should place you in a position (all else being equal) of not needing to pay extra next April. But note that it is less tax than the others above me mention, and this process is not always followed by payroll clerks, since it's more work than simply adding it to the normal pay as if it was regular salary. That method will result in overpayment, and a subsequent refund next April.