Trevor explains how employee bonuses work for employers. Bonuses are always taxable and subject to employment taxes, which can push employees into higher brackets. Payroll platforms like Gusto can automatically calculate gross-ups, where you pay extra pre-tax so the employee nets the intended amount.
Hi, it's Trevor at Bookkeeping for Painters here with some tips on employee bonuses. A lot of employers like to give holiday, incentive, and even signing bonuses to their employees. A bonus is defined as an additional payment to an employee beyond their regular wage. There are different IRS rules depending on whether the bonus was paid as part of their regular paycheck or in a separate check. One thing to remember is that bonuses are always taxable to employees. No matter when or how they're paid. They're also subject to all the same employment taxes as a regular paycheck. And depending on the size of the bonus, could bump your employee up into the next tax bracket, which may have unintended consequences for them. When you pay a $500 bonus, the net pay is less than that because of taxes. You can gross up the bonus and pay more so that your employee actually takes home that full $500. Payroll providers like Gusto will do this math for you, if you use their bonus payroll option. If you're considering giving bonuses, it's best to talk with a tax professional so that you can understand the ramifications for your employees. A tax professional can also help you understand best practices.
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