ICE launches recruitment campaign with $50,000 bonus
ICE is launching a campaign to recruit agents tasked with removing immigrants with criminal records. Push offers high pay and benefits.
straight arrow news
Americans who receive year-end bonuses for doing a good job may be bitterly disappointed when they open the envelope and discover that the big chunk is missing.
Up to one-third of your cash bonus can be swallowed up by Medicare, Social Security, and state taxes, plus the IRS’s special withholding tax on cash bonuses, or what’s called “side income.” The flat federal tax rate on bonuses is 22% for side income of less than $1 million. Add in Social Security (6.2%), Medicare (1.45%), and state taxes, and your total withholding is approximately 30% to 35%.
According to Homebase, a workforce management software company, “that 22% federal withholding…may be higher than your regular tax bill.” “If you normally pay 12%, 22% is gone from your bonus.”
Why could this cause economic disaster for the American people?
Kevin Knull, CEO of TaxStatus, which provides IRS data to financial advisors, said many Americans may have spent the holiday period as if they had received the entire bonus amount, rather than the bonus amount minus taxes.
For example, a $10,000 bonus for air traffic controllers who earn perfect attendance awards during a government shutdown is not actually a $10,000 bonus. Bonus withholding is a flat rate of 22%, plus 6.2% Social Security tax and 1.45% Medicare tax. These reduce the bonus to just over $7,000, plus the potential for state income taxes.
“It all gets deducted right away and goes to Uncle Sam,” Knull said. “About 48% of the population underestimates the taxes they pay. Income taxes take a huge chunk out of your paycheck.” If you used your entire “$10,000 bonus,” you would have overspent about $3,000.
Separately, experts say Americans should be aware that bonuses can push their tax rates even higher if they’re already approaching higher rates.
Do you have any (belated) good news?
Experts say if the tax on the bonus is less than 22% of the withholding rate, the difference will either be refunded or applied to taxes on other income. Bonuses are taxed as regular income on your tax return. To get this money back, you’ll have to wait until you file your 2025 taxes next year.
Conversely, if the tax on your bonus exceeds the 22% withholding rate, you will be liable to pay the difference between the amount withheld and the total tax amount.
How can I keep my taxes low with bonuses?
If you haven’t maxed out your 401(k) or IRA contributions for the year, consider adding some to your retirement savings to reduce your overall taxable income come tax season, writes Kay Bell at financial product comparison site Bankrate. Contributions are not subject to income tax, but subsequent withdrawals are taxed.
The IRA contribution limit for 2025 is $7,000, or $8,000 if you’re 50 or older. The 401(k) limit is $23,500, with an additional $7,500 if you’re 50 or older, excluding ages 60 to 63. These individuals are subject to a higher additional contribution limit of $11,250 instead of $7,500.
Alternatively, if you expect your income to be significantly lower next year and your tax rate will be lower, consider asking your employer to postpone the bonus until then, he said. You still have to pay taxes, but you save money by paying at a lower rate.
“However, even if their tax bill remains the same from year to year, some people may want to take a bonus next year just to move their tax liability to 2026,” says Richard Pong, a certified public accountant in San Francisco.
What about non-cash bonuses and gifts?
“Employers and employees may be shocked to learn that gifts are generally taxable,” Pong says.
Gifts and bonuses that are cash or cash equivalents, such as gift cards, season tickets to sports or theatrical events, and gift certificates, are taxable, Bong said.
“Employers may deduct this from your regular paycheck,” he says. “Your employer may also pay these taxes on your behalf and add up your income. If your employer pays your employee’s taxes, the value of your $25 gift card could double to $50 including taxes. You should check your pay stub to see if you owe taxes.”
Some exceptions exist. The first is a “conduit gift.” This is donated to an intermediary organization that passes the funds on to the final recipient. For example, if a parent teacher association (PTA) collects cash or gift cards to give to staff or faculty, those are pipeline gifts and are not taxable. The PTA was simply a conduit for gifts from parents.
Another exception is when managers personally give cash or gift cards to employees, Bong said. “It’s a personal gift. It’s not a gift from your employer,” he said. They are tax-free gifts to the recipients because the managers are “not the employers.”
However, he warned that these gifts could cause other friction in the workplace. “There are a lot of bad guys,” Pon said. “I once worked at an accounting firm, and the managing partner complained that I was giving gift cards and candy to the administrative staff as a token of appreciation for helping me throughout the year. The partner said it would be considered unkind if I didn’t hand out gifts to other managers.”
Bong said non-cash gifts, such as hams, turkeys and occasional tickets to sporting or theatrical events, are considered “minimum fringe benefits” and are not taxable. However, keep in mind that coupons and gift cards for the purchase of turkeys, hams, and other items may be taxable.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
