Tax Implications of Summer Bonuses and Overtime
Summer is a season of opportunity—for many workers, it brings bonuses, overtime, and seasonal job opportunities. But with that extra income can come an unexpected surprise at tax time. Let’s break down what you need to know to stay on top of your finances.
Summer Bonuses: A Taxable Benefit
Bonuses are considered supplemental wages by the IRS. This means they are usually taxed at a flat federal rate of 22%. However, that doesn’t mean the bonus is only taxed at 22%. Because bonuses are part of your overall taxable income, they could push you into a higher tax bracket at year-end, meaning more taxes owed if withholding wasn't enough.
Overtime Pay and Your Tax Bracket
Overtime is taxed the same as regular income, but that extra pay could increase your overall annual earnings. For hourly employees working overtime during the summer, it's possible to cross into a higher bracket temporarily, which might increase your tax liability if withholding isn’t adjusted.
Tips to Stay on Track
Adjust your W-4 withholding if you know you’ll receive a bonus or significant overtime.
Use a paycheck calculator or consult a tax professional to estimate your total tax exposure.
Consider setting aside a portion of any bonus or overtime in a high-yield savings account to prepare for your tax bill.
Final Thought:
Don’t let summer income turn into a winter tax surprise. Planning now can save you a headache next April.
