Are you wondering how to pay bonuses to employees without taxes? Regretfully, that is not an option. Employers must withhold taxes from employee bonus payments. The IRS mandates different guidelines based on whether you issue stand-alone bonus checks or integrate bonuses into regular wage compensation. Employers withheld a flat rate of 22% for all stand-alone checks that equaled $1 million or less for 2022. Apply standard payroll withholding rules if you include a bonus with your employee’s regular pay.
Yet employees can reduce the taxes that they pay on work bonuses in a few strategic ways:
Utilize Deductions – Employees must select itemized deductions under these circumstances. It may mean making an equitable charitable contribution or itemizing high medical expenses.
Increase 401(k) Contributions – Employees may use their entire bonus compensation or just a portion of the payment.
Contribute to a Traditional IRA – Employees can deduct traditional IRA contributions from the pre-tax income.
Employers can assist employees by combining a bonus with a regular salary. You simply tax on their regular withholding instead of the IRS’ fixed 22% rate.
Our core W-2/1099 Forms Filer software supports users reporting and withholding taxes from all employee bonuses throughout the year. Download our free software demo or call (405) 340-0697 with any questions.