Difference between Bonus Taxed as Regular and Supplemental Income

Bonus can either be set-up as regular orsupplemental earnings in NetSuite payroll module.

 

1. Bonus Taxed as Regular Income

 

This is taxed as regular income and made part ofthe regular payroll check.

 

2. Bonus Taxed as Supplemental

 

This is taxed at a flat rate for Federalwithholding and at supplemental rate for the state withholding.  Tax ratefor federal withholding is 22% and 37% for wages below 1million and above1million, respectively.

 

Earning with this code is processed separately fromthe regular batch.  If the supplementalpay is included on the same paycheck along with the regular pay, the payrollsystem will treat it as regular earning and will be taxed as such.

 

NOTE: Please contact your tax consultant or accountant for the appropriatebonus code to use for your account.

 

Below are sample illustrations for federal withholding calculation

 

1. $2,000.00 Bonus

 

Bonus - Taxed as Regular Income

First $ 1,631.00 = $ 171.34
Plus: 22% of excess over $ 1,631.00
First $ 1,442.00	$ 171.34
($2,000.00 - $1,631.00) * 22.00%	$ 81.18
Withholding Tax	$ 252.52

 

*Calculation based on 2018 Withholding tax tablesfor Single Person with zero Allowance and receiving bi-weekly payroll.

 

Bonus - Taxed as Supplemental Income

$2,000.00 * 22%

$ 440.00

 

 

2. $15,000.00 Bonus

Bonus -  Taxed as Regular Income

First $ 7,835.00 = $ 1,757.42
Plus: 35% of excess over $ 7,835.00
First $ 7,835.00	$ 1,757.42
($15,000.00 - $7,835.00) * 35.00%	$ 2,507.75
Withholding Tax	$ 4265.17

 

*Calculation based on 2018 Withholding tax tablesfor Single Person with zero Allowance and receiving bi-weekly payroll.

 

            Bonus -Taxed as Supplemental

$15,000.00 * 22%

$ 3,300.00

 

Notice that on item#2, the calculationof Federal Withholding for Bonus Taxed as regular is now greater than thetax calculated for Bonus Taxed as Supplemental.

 

Reference:

https://www.irs.gov/pub/irs-pdf/n1036.pdf

https://www.irs.gov/pub/irs-pdf/p15.pdf

 

Disclaimer:

The above tax rates are taken from Publication15 (Circular E) Employer's Tax Guide. The Internal Revenue Service (IRS)lays out rules, regulations, definitions and calculations in Publication15 (Circular E) Employer's Tax Guide.

This article is writtenwith the undertaking that tax rules and laws are constantly changing and isintended for informational purposes only.
We are not providing tax consulting.  If you have any questions concerning your situationor the information provided, please contact your tax consultant,accountant or attorney.