Congratulations! If you are one of the lucky ones, you are feeling great after receiving a generous holiday bonus from your employer. Your hard work paid off.
Already curious about how much money you have after taxes to spend on extra holiday gifts? We like how you are thinking.
Bonus pay is still considered taxable income and you will have to pay federal taxes on the money. The IRS considers a holiday bonus as a supplemental wage and they are usually taxed in a separate bracket. Your employer should do normal tax withholding if they paid the bonus through the normal payroll system but it could be more than normal. You might get a percentage of it back when you file your return. When you prepare your tax return, look on your W-2 in a row labeled supplementary income where a bonus usually appears.
Your employer, however, could choose to pay your bonus in cash or check. You won’t get away from reporting the income. Use line 7 of form 1040.
Your holiday bonus is well-deserved. Go ahead and splurge within reason knowing how much you’re getting after taxes. If you decide not to spend it all, consider maximizing the benefits by making a year-end contribution to a 401(k), IRA or a qualifying charitable organization to get a tax deduction.