Making bonus and commission payments

To make a payment for a bonus or commission, browse to "Make a payment". Select a Pay Date and then select Pay Type > Supplemental pay. From there, you'll be able to select "Bonus" or "Commission" from the Supplemental Pay Type dropdown.

Selecting a Federal Withholding Rate

When making a bonus or commission payment, you’ll have the option of selecting between a flat 25% or cumulative federal tax withholding rate for each payment. If the total of the employee's taxes paid exceeds the taxes due for the year, they'll receive a tax refund from the IRS after filing taxes.

Flat 25% Rate

Choosing to withhold at a flat 25% rate means that the employee’s supplemental pay will be withheld at 25% on a federal level regardless of which tax bracket they fall into for their regularly scheduled salary payments. This is the federally mandated minimal amount to withhold, and depending on how much the employee is earning, may require them to pay taxes at the end of the year. State and local taxes will also be applied in addition to the flat 25% for Federal.

Cumulative Rate

Cumulative rate allows you to choose the frequency of bonus/commission payments and use a complex calculation to estimate how much should be withheld based on projected future earnings.

The calculation looks at the employee's:

  • Projected annual income based on selected frequency of supplemental and regular salary/hourly payments
  • Past payments and amount of taxes withheld year-to-date

Using the above, the calculation will determine the employee’s projected tax liability for the year (less the amount already withheld). It will then divide that evenly up based on the selected frequency of supplemental payments to ensure an employee has the correct amount withheld at the end of the year.

When choosing a bonus/commission payment frequency, you have two choices: monthly and quarterly. You should choose the most appropriate frequency to ensure accurate withholding amounts. If the employee receives more than one supplemental payment per year (commission or bonuses) but the amounts vary greatly, you may want to consider using one-time frequency or flat 25% withholding.

Because there are many inputs into a person’s full tax liability (homeownership, change in pay basis, secondary income sources, etc) we can’t guarantee cumulative withholding will withhold the exact amount needed for any given employee.
 

The below calculation example is based on filing status of Married with four allowances. The employee earns $1,000 per week with a current bonus of $5,000. This is the 10th pay period of the year.

Step

Action

Result

Example

1

Add regular, supplemental, and year-to-date wages.

Total gross wages

1,000 + 5,000 + 9,000 = 15,000

2

Divide by the current pay period.

Average gross wages

15,000 / 10 = 1,500

3

Multiply by the annual number of pay periods

N/A

1,500 x 52 = 78,000

4

Subtract the withholding allowance amount. Withholding amount, per allowance: 4,050

Annual taxable wages

78,000 - 16,200 = 61,800

5

Compute the annual federal tax using the tax rate table. Married: Line 3

Annual federal tax

61,800 - 27,100 = 34,700 x .15 = 5,205 + 1,855 = 7,060

6

Divide the annual federal tax by the annual number of pay periods.

Federal tax on annual gross wages

7,060 / 52 = 135.7692

7

Multiply by the current pay period number.

N/A

135.7692 x 10 = 1,357.69

8

Subtract the year-to-date tax amount.

Federal tax for the pay period

1,357.69 - 546.93 = 810.76

Deadlines for 2017 bonus payments

The last day to process a bonus payment through the Justworks platform to be included on 2017 W-2s is December 22, 2017. Any payments processed through the app after this date will be included on the 2018 W-2 as that is when payments will actually be received by the employee.

If you are setting up any custom bonuses (special withholding rates, particular net amounts, or special 401(k) deductions), you’ll need to inform Justworks prior to December 15, 2017 so we can make sure the correct tax rates are applied. You can do so by contacting your Account Manager or our support team at support@justworks.com or calling 888-534-1711

Disclaimer

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.

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