Wages, bonuses, and severance pay are all considered earned income and taxed the same. The IRS has a progressive tax. This means that the more you earn, the higher your taxes and tax bracket. When your bonus was paid at the higher tax rate, it is probably because your company had factored in all of your previous earnings.
Also, Payroll services withhold taxes based on what they think you will make for the year.
- If you earn $5,000 a month, they will project that you will earn $60,000 in the year.
- They then subtract the deductions you indicated on your W-4 or the standard deduction
- They estimate the tax for the entire year.
- Then they allocate the tax on a weekly, or monthly basis.
- A bonus or severance pay is not a planned income and wouldn't be included in the previous calculation.
- Therefore, they would be taxed at the full tax rate for your total income.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
