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Bonuses are taxed separately from regular pay, so you may want to take some proactive steps to make sure you don’t get paid more than necessary.
Withholdings on bonuses often differ from your regular salary, primarily because bonuses are viewed as supplemental income. The main thing to remember is that your actual tax liability may differ significantly from what was — or was not — withheld from your bonus check.
Being proactive can potentially reduce your balance or perhaps even increase your refund.
Confirm the amount of tax withheld
Some employers combine bonus payments with regular pay checks, withholding the same amount on both. but other people use it irs percentage method, That includes a 22% withholding on bonuses under $1 million.
Since every employee’s tax situation is different, be sure to review your pay stub and W-2 as soon as possible. The amount withheld from your check may be either more or less than your actual balance.
Boost retirement contributions
The deadline to take the deduction on contributions to traditional IRAs or workplace retirement plans is April 15. This means you still have time to make the final deduction for tax year 2025. Reducing your adjusted gross income (AGI) can also improve your eligibility for certain deductions or credits. Kiplinger.
Consider HSA Contributions if Eligible
Like most retirement plans, the contribution deadline for tax year 2025 is April 15, 2026. If you qualify for a Health Savings Account (HSA), you can make tax-deductible contributions to the plan up until the tax-filing deadline. This can be an easy way to offset at least some of the taxes on your bonus income.
Be prepared for a jump in the tax bracket
A possible drawback of bonus payments, as mentioned Loyaltyis that it could push you into a higher tax bracket. For example, even if you are typically in the 22% tax bracket, the 22% tax withheld from your bonus may not be enough to meet your obligations if you are pushed to a different income level.
final take to go
Bonuses are generally seen as a welcome reward for hard work. But if you haven’t planned ahead, the bill you get when you file taxes can overshadow all your happiness. To avoid any unpleasant surprises, review your withholdings, maximize your deductions and be wary of tax bracket creep as you earn more money.