Expert: Denise Duplinski - 12/20/2006

Question
I do weekly payroll manually for a small company, and I have the calculations down for all normal payroll.  My question is, do I take out more taxes for bonus checks, or do I still take out the taxes at the normal 15% (or more, depending on the gross pay)? It will be paid separately from the weekly paycheck.  

Answer
Here are the instructions from the IRS in Circular E:

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

Supplemental wages identified separately from reg- Tips treated as supplemental wages. Withhold income
ular wages. If you pay supplemental wages separately tax on tips from wages or from other funds that the em(
or combine them in a single payment and specify the ployee makes available. If an employee receives regular
amount of each), the federal income tax withholding wages and reports tips, figure income tax withholding as if
method depends partly on whether you withhold income the tips were supplemental wages. If you have not withheld
tax from your employee’s regular wages. income tax from the regular wages, add the tips to the
regular wages. Then withhold income tax on the total. If
1. If you withheld income tax from an employee’s regu- you withheld income tax from the regular wages, you can
lar wages, you can use one of the following methods withhold on the tips by method 1-a or 1-b above.
for the supplemental wages.
Vacation pay. Vacation pay is subject to withholding as if
a. Withhold a flat 25% (no other percentage al- it were a regular wage payment. When vacation pay is in
lowed). addition to regular wages for the vacation period, treat it as
b. Add the supplemental and regular wages for the a supplemental wage payment. If the vacation pay is for a
most recent payroll period this year. Then figure time longer than your usual payroll period, spread it over
the income tax withholding as if the total was a the pay periods for which you pay it.
single payment. Subtract the tax already withheld
from the regular wages. Withhold the remaining
tax from the supplemental wages. If there were 8. Payroll Period other payments of supplemental wages (after the
last payment of regular wages but before the cur- Your payroll period is a period of service for which you
rent payment of supplemental wages), aggregate usually pay wages. When you have a regular payroll peall
the payments, calculate the tax on the total, riod, withhold income tax for that time period even if your
subtract the tax already withheld from the regular employee does not work the full period.
wages and the previous supplemental wages, and
withhold the remaining tax. No regular payroll period.