How to give (and tax) an employee bonus

Giving a bonus isn't as easy as sliding money across the table. (If only!) There may be some extra taxes and benefits that are affected, like a 401(K). Leslie will give you a quick overview.

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The bonuses we talk about are off of your payroll cycle, which means they're not included in your normal payroll payments. That's important because those bonuses could be subject to additional taxes. We'll break it down:

1. Tax considerations when giving a bonus:
Say one of your employees makes $40,000 per year, but throughout the year you gave them $5,000 worth of bonuses. That means they really made $45,000 per year. So, that $5,000 is most likely subject to some additional tax withholding rules. That will also increase the income taxes that they owe.

Check with your CPA or payroll provider to see if you need to use a 25% supplemental federal withholding rate on that bonus. There might also be some state flat rates you'll need to take care of. The best thing? Talk to a professional to figure out what to do.

2. Benefits considerations when giving a bonus:
Health insurance and commuter benefits typically are not included in bonuses. However, 401(k) plans may be included. So, check with your 401(k) provider to make sure you are compliant.

That's it! You've got the raw facts for figuring out how to give a fatty, compliant bonus.

For more helpful resources on paychecks and payroll:

[READ] How to Read Your Pay Stub: goo.gl/wjNbJe

[READ] Paychecks 101: Key Terms: goo.gl/mwuJHE

[READ] What are Payroll Taxes? goo.gl/CYTGc2

[READ] A Payroll Tax Primer for Small Businesses: goo.gl/QTMuXj

[READ] Common Payroll Terms: goo.gl/j3hgmN

[WATCH] What's the difference between gross pay & net pay: goo.gl/QDUhYJ

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