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Devon Littlefield
Financial Advisor
Reliant Investment Services
Located at
Reliant Community Federal Credit Union
10 Benton Place, Sodus, NY 14551
Phone: 800-724-7889 Opt. 1
Email: devon.littlefield@lpl.com
March/April 2025
How Bonuses Are Taxed
Many employers typically pay annual bonuses in the first quarter of the year. If you received a bonus for the first time this year, you may be surprised at the net amount of your "windfall."
Why the Surprise?
Work bonuses are classified as supplemental wages subject to federal income tax withholding. They are also subject to Social Security and Medicare taxes, and in some cases, state taxes apply. The IRS provides employers with specific guidelines outlining the methods for calculating federal income tax on supplemental wages.The default rate for federal income tax withholding on bonuses less than $1 million is 22% and employers can withhold that amount. Alternatively, the employer can combine regular and supplemental wages to calculate the tax amount. That means your bonus may be taxed at your highest individual income tax rate, not to mention any state tax. You may receive some of the withheld amount back as a tax refund. Check with your tax professional.
Handling the Influx of Cash
So, now that you're over the tax sticker shock, what will you do with your windfall? Consider rewarding yourself in some small way, such as a weekend away or that electronic device you've wanted.Contributing the rest to tax-advantaged accounts such as a 401(k) or IRA is a good move. By contributing at least part of your bonus to these accounts, you save for your future and may offset some of your tax bill for the year.
Another way to minimize the tax impact is to consider charitable contributions. Donating a portion of your bonus to qualified charitable organizations not only supports meaningful causes but also provides a deduction that can lower your taxable income.
While it won't reduce taxes, you may want to use some of your bonus to pay off a high-interest credit card or student loan.
Be careful not to become reliant on annual bonuses. In tight economic times, bonuses can be reduced or even suspended.
The choice is yours, but being strategic with your bonus can lead to substantial financial benefits.
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Devon Littlefield is a financial advisor with, and securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Reliant Community Federal Credit Union and Reliant Investment Services are not registered as a broker/dealer or investment advisor. Registered representatives of LPL offer products and services using Reliant Investment Services, and may also be employees of Reliant Community Federal Credit Union. These products and services are being offered through LPL or its affiliates, which are separate entities from and not affiliates of Reliant Community Federal Credit Union or Reliant Investment Services. Securities and insurance offered through LPL or its affiliates are:
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