I’m a dental hygienist and get incentives monthly depending on production. It’s only a couple hundreds. I get it in a different payroll from my pay. It shows that federal and state tax are not taken out, only social security and medicare are taken out. Is this because a lot of taxes are already taken out from my pay?
Posted by Top_Sound_6626
2 Comments
Not an expert so I suspect people will correct me if I’m wrong.
The IRS doesn’t recognize a difference between bonus/incentive from standard pay so it applies the same tax estimates. This means the IRS assumes the check represents your normal pay and estimates your annual pay and taxes from that one check.
If your bonus is a couple hundred dollars, it assumes your annual pay will be very, very low so it taxes you under that assumption (ie, you will owe no taxes). Conversely, if you were to receive a $50K bonus, they assume your annual pay may be very high so that bonus may be taxed at a very high rate.
It all gets reconciled at the end of the year when you file your full tax return. If you were under taxed, you’ll end up paying that difference when you file.
Bonuses are taxable. You should talk to your payroll and ask them why taxes aren’t being withheld on your bonuses. You will end up paying taxes on them when you file your taxes.