How Bonuses Are Taxed and Why

fizkes/Shutterstock

A bonus is a type of payment on top of your regular wages. And you probably wait all year to receive yours. But they’re still income and subject to taxes. You'll note this when you see that your bonus is much smaller than you thought.

There are two ways to tax your bonus. So, what are the different ways taxes can impact your bonus? And what can you do to limit your tax liability?

Bonuses Are Supplemental Income

Supplemental income is usually money earned outside your regular paycheck. For example, if you have rental property, estates, trusts, royalties, etc. These are declared on Schedule E of your income tax return and have their own tax rate.