Bonuses are taxed differently than regular wages, so you might want to take some proactive steps to ensure you don’t end up paying more than you should.
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Withholding on bonuses is often different than with your regular salary, primarily because bonuses are seen as supplemental income. The main thing to remember is that your actual tax liability may vary considerably from what was — or was not — withheld from your bonus check.
Being proactive can potentially reduce what you owe or perhaps even boost your refund.
Confirm the Amount of Tax Withheld
Some employers combine bonus payouts with regular paychecks, withholding the same amount on both. But others use the IRS percentage method, which involves holding back 22% on bonuses under $1 million.
Since every worker’s tax situation is different, be sure to review your pay stub and W-2 as early as possible. The amount withheld from your check may be either higher or lower than what you actually owe.
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Boost Retirement Contributions
The deadline for taking deductions on contributions to traditional IRAs or workplace retirement plans is Apr. 15. This means you still have time to squeeze in a last-minute deduction for tax year 2025. Lowering your adjusted gross income (AGI) may also improve your eligibility for certain deductions or credits, according to Kiplinger.
Consider HSA Contributions, If Eligible
As with most retirement plans, the contribution deadline for tax year 2025 is Apr. 15, 2026. If you qualify for a health savings account (HSA), you can still make tax-deductible contributions to the plan up until the tax-filing deadline. This can be an easy way to offset at least some of the taxes on your bonus income.
Prepare for a Jump in Tax Brackets
One potential drawback of a bonus payout, as explained by Fidelity, is that it can push you into a higher tax bracket. Even if you’re usually in the 22% tax bracket, for example, having 22% in taxes withheld from your bonus may not be enough to satisfy your obligations if you are pushed up into a different income level.
Final Take To GO
Bonuses are typically seen as welcome rewards for hard work. But if you don’t plan ahead, the bill you get when you file your taxes can sap all of the joy away if you haven’t planned ahead. To avoid any unpleasant surprises, review your withholding, maximize your deductions and be mindful of tax bracket creep when you earn more money.
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This article originally appeared on GOBankingRates.com: If You Got a Bonus in 2025, Here Are 4 Moves You Might Want To Make Before Filing Taxes
