From the course: Human Resources: Payroll
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Bonus and commissions
From the course: Human Resources: Payroll
Bonus and commissions
- How many of you have ever received a bonus and ever wondered why you had so much taxes taken out of your check? Well, bonuses are considered supplemental income, and are taxed differently and higher than regular income. Some companies will offer a bonus for exceptional performance. It's then HR's responsibility to properly award the bonus and record it correctly on payroll. For example, University X gives its employees quarterly bonuses for exceptional company profitability. They use the percentage method, which normally taxes bonuses at 22%. University X awarded each of its professors a $5,000 a year bonus based on those exceptional student evaluations. Therefore, based on that 22% tax rate, $1,100 of that will go to the IRS. They also will have Social Security and Medicare taxes with help from that bonus. If you're lucky enough to make over a million dollar bonus, you'll be taxed at a higher rate of 37% in the…
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