Thinking about giving an employee a Christmas bonus? That’s a wonderful idea! However, how will this really affect the way you do taxes this year?
IRS rules indicated that you’re required to withhold 25%-28% of their total bonus if it’s done separately. If the payment is done with their regular wages, then just withhold the percentage amount that you would regularly withhold from them. This is a very simplified version of the IRS tax law when it comes to bonuses, not only Christmas bonuses.
One thing to consider is that it is still money being paid to your employee, so no matter what, there needs to be a certain amount of taxes withheld. What you need to take away from is that if you don’t withhold taxes on your employees earnings then that money could be coming out of your company’s pockets and just never good.
The easiest way to do bonuses may be to pay the bonus alongside with their regular earnings, you don’t have to separate the items as an itemized deduction. This way your employee knows that they are getting a bonus since their pay will be elevated from what it usually is, also understanding that they have to be taxed on it. Doing it separately may come off as a double taxation since they are being taxed separately on the bonus.
For more information about Bonuses and Taxes, refer back to the IRS and their guidelines by visiting the following link.
Merry Christmas to all!
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