You’ve worked hard and your employer rewards you with a holiday bonus. While you greatly appreciate it, it leaves you asking yourself, “What are the tax implications of this gift?” Wych Tax, your tax accountant in Fort Collins has the answer!
Bonus Basics
Here are the questions we are most frequently asked about holiday bonuses:
- Are holiday bonuses taxed? Yes, they are considered a “supplemental wage” and are taxed. Be aware that if a bonus isn’t processed by your employer in the same way that your regular paycheck is (and therefore reported to the IRS), you must report the bonus when you file your taxes.
- Are bonuses taxed at a different rate? No, they are not. The amount withheld from your check is at a rate the IRS requires and may be different than the withholding rate on your regular paychecks. The bonus will be taxed on your tax return at whatever your marginal tax rate is. Wych Tax, your tax accountant in Fort Collins, can explain in more detail.
- Is money received in the form of a gift card subject to tax? Yes, you must report the amount of the card when you file your taxes.
- Can I avoid paying taxes on my bonus? Just as with your standard income, your bonus can provide a tax advantage if you do things with it like put it into a retirement account, donate it to a registered charity, make a mortgage prepayment, make “green” home improvements, etc.
- Do employers pay taxes on holiday bonuses? Yes, they pay payroll taxes on the amount given.
It’s important to note that due to the current discussions in Congress around changing the tax laws, it may be to your advantage to delay a bonus until next year when rates are expected to be lower.
Making the Most of Your Much-Deserved Reward
If you’ve got specific questions about what to do with a holiday bonus, your trusted tax accountant in Fort Collins can help. Contact Wych Tax today to ensure you’re able to keep as much of that gift as possible.
