D.C. Aggregate Bonus Pay Calculator
(and Bonus Tax Rates)
Rewarding your employees for excellent performance is a fantastic way to acknowledge their efforts in boosting your bottom line. Offering a cash bonus is one of the best ways to show appreciation—after all, who doesn’t like extra money? Just keep in mind that the IRS refers to bonuses as “supplemental wages” and requires employers to withhold tax on them. This withholding calculation can be done in two ways, depending on how you structure the payment: the aggregate method or the flat method.
Understanding the Aggregate Bonus Method
How can employers who reward top performers handle tax withholding to ensure that Uncle Sam gets his due? Below is a free aggregate bonus calculator, powered by Beyond, to calculate this tax in a few clicks. Simply enter your employee’s gross bonus amount, along with their regular wage and W-4 information. Our bonus pay calculator will tell you how much federal and state tax to withhold. Additionally, here is information on what an aggregate bonus is, how it’s calculated, and how it differs from the flat method.
What is an Aggregate Bonus?
Simply put, an aggregate bonus is a payment an individual receives in addition to their regular paycheck. When an employee receives this type of bonus, taxes are withheld based on the combined sum of the bonus pay and their regular wages.
What is the Aggregate Method?
In short, the aggregate method is a way of withholding federal income tax from supplemental wages where the supplemental payment is combined with the regular wages paid during the most recent or current payroll period.
After calculating withholding on the total amount using the applicable methods (which often involve the wage-bracket or percentage method), the amount already withheld from the employee’s last regular wage payment is subtracted to find the exact amount that must be withheld from the supplemental wage payment.
How are Withholdings Calculated?
To determine withholding for aggregate bonus pay, you treat the total of the regular wages and supplemental wages as a single payment for tax purposes. First, you’ll add the bonus amount to the employee’s regular wages. Then, you’ll need to figure the tax on this combined pay using the appropriate tax tables.
Next, find the tax amount for only the regular wages. Once you have this figure, you can subtract it from the combined tax amount to determine the tax you’ll need to withhold specifically for the bonus portion.
Aggregate vs. Flat Bonus Rate Examples
Regardless of which method you use to withhold income tax on supplemental wages, these payments are still subject to Social Security, Medicare, and FUTA taxes.
Here’s an Example of the Aggregate Approach
Imagine your sales director, Jack, takes on a special project and greatly surpasses your June sales goals. As a result, you decide to give him a $4,000 bonus in July to thank him for his hard work. His regular salary is $72,000 per year, or $6,000 per month. You do not separate the bonus from his regular wages, so Jack’s July gross pay is now $10,000.
Since the bonus is combined with his regular wages, Jack’s tax bracket likely increases for this payment. You will therefore need to calculate and withhold taxes based on a one-time paycheck of $10,000, instead of the usual $6,000.
How Does the Flat Method Work?
If you opt for flat withholding for bonuses, you will simply apply a federal tax rate of 22% and pay the bonus by a separate check. If your employee earns more than $1 million annually in bonuses, different rules apply, such as a 37% withholding on the supplemental wages over that amount.
Here’s an Example of the Flat Withholding Method
For flat method withholding, Jack will receive two checks. One will be for $4,000 for his bonus, taxed at a flat 22% federal income level, and the other will be his regular paycheck for $6,000 wages minus the usual tax withholdings.
Both methods require some extra math, so we highly recommend using a payroll bonus calculator like the one provided by Beyond to ensure your withholdings are calculated correctly.