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Why does bonus pay take out more taxes than regular payroll?
I wanted to pay an employee an additional check. Not necessarily a bonus but when I went to do it as bonus for record keeping, the taxes it was showing that were taken were significantly more than when I just put it in as regular payroll. I don't understand why? I ended up putting it as a payroll instead so they got more on their check but why did it do that?
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I am not a tax expert. A google search resulted in the following:
A bonus is always a welcome bump in pay, but it's taxed differently from regular income. Instead of adding it to your ordinary income and taxing it at your top marginal tax rate, the IRS considers bonuses to be “supplemental wages” and levies a flat 22 percent federal withholding rate
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When I worked the daily grim and found out that Bonuses were taxed at a higher rate. I talked to my accountant then. I was basically informed that this is for 2 Different reasons 1 as mentioned by @DinaLRosenberg , and the other was that your Higher pay including your bonus, the Tax software used to calculate taxes figures that as your regular weekly, biweekly etc rate. This Bump in calculations puts you in a Higher tax bracket so more taxes are held at that time. But in either case, when taxes are filed, you will then after all other deductions be basically in your correct Tax bracket and get a refund unless your regular income is at the very Top of a tax bracket. Then the additional Bonus may put you in the Higher Bracket. Since the Income Tax is then calculated on all income, both regular and Bonus income.
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