AboutShirley McAllister, CPP, PHR Expertise I can answer payroll questions, payroll tax questions, 401K questions. No stock option questions please and I have some knowledge of other pensions but am most familiar with the 401K pension.
I can answer U.S.and Canada payroll questions proficiently and have a good general knowledge of UK and South Africa and some knowledge of Australia and New Zealand Payroll procedures.
Please do not ask me homework questions I do not have time to answer them.
Experience 25 years with an international company in the Human Resources, Payroll and Payroll Tax areas.
Organizations SHRM, APA, I.O.M.A.
Publications I.O.M.A. and BNA
Education/Credentials P.H.R., C.P.P., Canadian Payroll Administrator, Successfully passed APA class on UK Payroll Administration.
Boise State University Human Resource Certification
Awards and Honors APA Hotline Citation of Merit for last 8 years.
Question Iam paying an employee a referral bonus of $600. Is this considered taxable as a bonus or can it be taxed at their regular payroll rate?
Answer Bonus checks are generally taxed at the supplementary tax rate.
Basically what it says if you determine the amount separate from regular pay even if it is on the same check it is supplementary wage and needs to be taxed as such. If it is a separate check it needs to be taxes as supplementary wages.
Below is the instructions from Circular E on supplemental wages and how to tax them.
. Supplemental Wages
Supplemental wages are compensation paid in addition to an employee's regular wages. They include, but are not limited to, bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for nondeductible moving expenses. Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan. How you withhold on supplemental wages depends on whether the supplemental payment is identified as a separate payment from regular wages.
Supplemental wages combined with regular wages. If you pay supplemental wages with regular wages but do not specify the amount of each, withhold federal income tax as if the total were a single payment for a regular payroll period.
Supplemental wages identified separately from regular wages. If you pay supplemental wages separately (or combine them in a single payment and specify the amount of each), the federal income tax withholding method depends partly on whether you withhold income tax from your employee's regular wages.
1. If you withheld income tax from an employee's regular wages, you can use one of the following methods for the supplemental wages.
a. Withhold a flat 25% (no other percentage allowed).
b. 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. If there were other payments of supplemental wages (after the last payment of regular wages but before the current payment of supplemental wages), aggregate all the payments, calculate the tax on the total, subtract the tax already withheld from the regular wages and the previous supplemental wages, and withhold the remaining tax.
2. If you did not withhold income tax from the employee's regular wages, use method 1-b above. This would occur, for example, when the value of the employee's withholding allowances claimed on Form W-4 is more than the wages.
Regardless of the method that you use to withhold income tax on supplemental wages, they are subject to social security, Medicare, and FUTA taxes.
Example 1.
You pay John Peters a base salary on the 1st of each month. He is single and claims one withholding allowance. In January of 2008, he is paid $1,000. Using the wage bracket tables, you withhold $51 from this amount. In February 2008, he receives salary of $1,000 plus a commission of $2,000, which you include with regular wages. You figure the withholding based on the total of $3,000. The correct withholding from the tables is $344.
Example 2.
You pay Sharon Warren a base salary on the 1st of each month. She is single and claims one allowance. Her May 1, 2008, pay is $2,000. Using the wage bracket tables, you withhold $194. On May 14, 2008, she receives a bonus of $2,000. Electing to use supplemental payment method 1-b, you:
1. Add the bonus amount to the amount of wages from the most recent pay date ($2,000 + $2,000 = $4,000).
2. Determine the amount of withholding on the combined $4,000 amount to be $584 using the wage bracket tables.
3. Subtract the amount withheld from wages on the most recent pay date from the combined withholding amount ($584 - $194 = $390).
4. Withhold $390 from the bonus payment.
Example 3.
The facts are the same as in Example 2, except that you elect to use the flat rate method of withholding on the bonus. You withhold 25% of $2,000, or $500, from Sharon's bonus payment.
Example 4.
The facts are the same as in Example 2, except that you elect to pay Sharon a second bonus of $1,000 on May 28. Using supplemental payment method 1-b, you:
1. Add the bonus amount to the amount of wages from the most recent pay date ($2,000 + $2,000 + $1,000 = $5,000).
2. Determine the amount of withholding on the combined $5,000 amount to be $834 using the wage bracket tables.
3. Subtract the amount withheld from wages on the most recent pay date and from the first bonus payment from the combined withholding amount ($834 - $584 = $250).
4. Withhold $250 from the second bonus payment.
I hope this helps. I always tax all bonus checks at the supplementary wage. If the tax is not owed than the employee will get it back when he/she files thier tax returns.
