Question: What are the tax guidelines for executive bonuses payments? I need to calculate the withholding on them manually.
Answer: Bonuses are supplemental pay. So you can use the flat 25% income tax withholding rate for bonuses that don’t exceed $1 million. For bonuses and other supplemental pay that exceed $1 million, you must use the flat 39.6% rate, and disregard the executive’s W-4 form. The normal FICA rates apply, up to the $113,700 Social Security wage base. After that, withhold 1.45% in Medicare taxes. If the executive’s pay exceeds $200,000, withhold Medicare taxes at 2.35%.