Advantages of paying a bonus separate from a regular paycheck

Why create separate bonus checks instead of just including the bonus on a regular check run?

In a bonus run, you can:

• Control the tax treatment of a bonus or the withholding of retirement account deductions.
  
Example

You can withhold federal income tax on the bonus at the flat 25% supplemental rate instead of being taxed at the personal income tax rate.

You can't control the tax rate when you include the bonus on a payroll check. What other special tax rates should be considered?

• Turn off direct deposit for the bonus check.
• Pay the employee bonus offcycle, not on a regularly scheduled payday. You can use a bonus check to pay back wages or underpaid wages.
• Use net-to-gross calculations for the bonus check.
• Give a bonus to an employee who has accumulated $1,000,000 or more in supplemental wages — if you do, you are required to withhold federal taxes at 39.6%.
  

See also

• Add a bonus to regular paychecks
• Create bonus checks only
• Payroll topics

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