Bonus pay is compensation awarded to employees (in addition to their base salary). It is generally distributed at the employer’s discretion.
Bonus Extended Definition
Bonuses are wages that employees receive as a reward for exceptional performance or as a holiday gift.
All bonuses are treated as supplemental income by the IRS. For supplemental wages, employers can withhold a flat supplemental tax rate of 22% for federal income tax. Or, employers may be able to withhold federal income tax on the total wages (bonus plus regular wages) like normal, based on the income tax bracket for the total.
For bonuses valued at over $1 million, the IRS levies a tax of 35%. This tax is withheld by the employer and paid directly to the IRS.
Last Updated By
Rachel Blakely-Gray | Feb 15, 2023