When you want to reward your team for a going above and beyond, a cash bonus can be a great way to say thanks. But there are some key things to know to make sure you stay compliant and keep your employees happy.

Bonuses, defined

Bonuses increase the amount of wages an employee gets in a year, beyond their assigned salary or hourly rate. For this reason, they’re typically subject to additional rules for income tax withholding.  In some cases, you may need to use a flat supplemental withholding rate of 22%. Make sure you check out the IRS regulations so you withhold income tax at the correct rate.

Another thing to remember is that normal benefits, like health insurance or commuter funds, aren’t typically included with a bonus. If you have a 401(k) plan, you may be required to make those contributions and deductions on any payroll, including a bonus. Check with your plan provider to learn more about your own situation.

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