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Thanks for the question.
The most common practice is to withhold 25% for federal income tax from the gross bonus pay as this is considered a supplemental wages. Plus state income tax if applicable.
Thus for $1000 bonus you should withhold:
You may, however, withhold federal income tax the same way as from regular wages based on W4 filing (single/married? number of allowances?). The choice - how to withhold - should be made by the employer and should be applied to all employees during the year - they may not withhold differently for different employers.
Bonus checks are subject to normal tax deductions, including state and federal taxes.
When you create a bonus check, you will need to select a payroll item that has been set up for that purpose. If you need to set up such a payroll item, see How do I set up a payroll item for a bonus?
I hope this helps - Good Luck !
Bonuses are compensation that is subject to FICA and medicare just the same as regular wages; so those computations are the same for the bonus as for any other compensation.
Circular E http://www.irs.gov/pub/irs-pdf/p15.pdf has the instructions for employers. Section 7 has the rules for supplemental wages (which includes bonuses and commissions). See http://www.irs.gov/publications/p15/ar02.html#d0e1643
If you pay supplemental wages with regular wages withhold federal income tax as if the total were a single payment for a regular payroll period.
If you pay supplemental wages separately from regular wages add the supplemental and regular wages for the most recent payroll period this year. Then figure the income tax withholding as if the total was a single payment. Subtract the tax already withheld from the regular wages. Withhold the remaining tax from the supplemental wages.
Or, the employer can choose to withhold at a flat 25% on supplemental wages when paid separately or if separately identified on the same check as regular wages. This is common probably because it is easier to compute.
Either the flat 25% or withholding as described above is acceptable; but you can not treat the supplemental wages as a separate pay (and so only withhold on that amount). You must add them to regular wages of a pay period or compute the withholding as if the supplemental wage was a single payment with the prior pay period if a separate check is made.
I hope this information is useful to withhold income taxes from supplemental wages and bonuses.