Does the tax on your year-end bonus check seem high? Here's why

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Does your year-end bonus look smaller than expected?

Tax withholding is a likely culprit — but Uncle Sam may pay some back when you file an annual tax return, experts said.

Bonuses are treated as taxable income, like wages in a typical paycheck.

However, unlike wages, the IRS treats them as «supplemental» income, which is generally subject to different tax withholding rules.

Most often, employers withhold tax from bonuses at a flat 22% federal rate, according to tax experts.

As such, bonus tax withholding «will look like a big number» for any taxpayer whose federal marginal income tax rate is less than 22%, said Jeremiah Barlow, head of wealth solutions at Mercer Advisors.

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Many taxpayers fall into that category. In 2023, that group includes single individuals with a taxable income up to $44,725, and married couples who file a joint return with income up to $89,450.

In 2020, 49% of individual tax returns — roughly 81 million — were in a marginal income tax bracket below 22%, according to IRS statistics. (That figure includes taxpayers in the 10% and 12% tax brackets, but excludes those in the 0% bracket.)

A bonus may be subject to other withholding, too, like state and local income taxes.

Employers in California, for example, withhold supplemental wages at a 10.2% state rate — meaning residents' bonuses would likely be withheld at a combined 32.2% state and federal rate, Barlow said.

In addition, bonuses are also typically subject to Social Security and Medicare payroll taxes, of 6.2% and 1.45%,