Expert: Mike Wellman - 12/4/2007

Question
Hi,  We are giving bonus checks to our employees this Christmas.  Do I take payroll taxes out of them?

Answer
Yes, however you may want to make a manual adjustment for federal income tax withholding. The problem comes in when a person gets a bonus larger than than what they get on their regular check - or they are paid on the same check. For example, if they get paid weekly but get a bonus of one month's pay, it will cause over-withholding on the check. In these cases, adjust federal withholding to no more than 20% as a rule of thumb.

Fica/Medicare do not need to be adjusted.