Hi guys,
My end-of-year bonus is taxed at nearly 40%, whereas my regular income falls into the 24% tax bracket. I’ve read that supplemental income, like bonuses, is typically taxed at a flat 22%. Is this 22% in addition to my regular tax rate? I’m seeking more insight to understand this better.
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Hello @MarkTaxPro, First you need to understand that supplemental income, such as bonuses, commissions, and severance payments, is indeed taxed differently from regular income.
When your employer pays you supplemental wages including bonuses, they typically withhold a flat 22% for federal income tax. This rate applies to amounts up to $1 million. So, if your bonus falls within this range, the 22% withholding is separate from your regular tax rate.
In addition, learn today that the supplemental income tax rate is not added to your regular tax rate. It is a separate withholding specifically for supplemental wages. Your regular income tax rate remains based on your overall income and tax bracket.