The Internal Revenue Service treats bonuses as supplemental wages rather than regular wages. Like regular wages, however, they are subject to income taxes. In Illinois, bonuses are taxed at the supplemental rate for state income tax. Federal taxes also apply.
Illinois Income Tax
As of 2013, Illinois’ income tax rate for regular and supplemental wages is 5 percent. To help figure state income tax on your bonus, your employer obtains your number of withholding allowances from line 2 of your state tax form, IL-W-4, and uses the state withholding tax tables in Booklet IL-700-T to figure the withholding amount. For example, you are paid weekly and receive a Christmas bonus of $400, plus you claim two allowances on your IL-W-4. As of 2013, your employer must subtract $0.96 per allowance from the amount of tax the withholding table says to withhold, which is $16.01. Multiply $.096 times two allowances to get $1.92. Then subtract $1.92 from $16.01 to get $14.09 -- your withholding amount.
If your employer pays your bonus with your regular wages on the same check, it combines the two amounts and then deducts Illinois tax. For example, if your weekly gross wages come to $400, your total weekly wages would be $800 when you add the Christmas bonus of $400. To figure your withholding, your employer would use Booklet IL-700-T’s guidelines for calculating weekly bonuses of $500 or more.
Federal Income Tax
As of 2013, your employer may withhold federal income tax at 25 percent if the employer pays the bonus on a separate check from your regular wages. If it pays the bonus with your regular wages, it withholds federal income tax based on your W-4 allowances and the tax tables in IRS Circular E. If all of your supplemental wage payments -- including bonuses -- exceed $1 million for the year, the highest tax rate of 39.6 percent applies to the amount over $1 million.
Federal Insurance Contributions Act taxes -- which are Social Security and Medicare taxes -- must also come out of your bonus. As of 2013, your employer takes 6.2 percent out for Social Security tax and 1.45 percent for Medicare tax. Social Security tax has an annual wage base of $113,700 as of 2013. If you’ve already earned the annual wage base in regular wages, no Social Security tax should come out of your bonus.
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