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Example With Bonus In Texas
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Multi-State
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US-0002LR
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FAQ
Bonuses are not explicitly addressed in Texas wage law. Generally, discretionary bonuses would not be considered wages, while nondiscretionary bonuses should be considered wages and protected under wage laws. A nondiscretionary bonus is one where the amount and criteria for getting the bonus are announced in advance.
Bonuses and stock options are subject to federal taxes, but there's no additional state income tax on these earnings in Texas.
When your employer provides you with a bonus, they will report it on your W-2 in box 1—but it's combined with your normal wages or salary. In the eyes of the Internal Revenue Service, your bonus is no different than the salary you receive.
While you will not need to handle a 1099 form when providing bonuses, you'd be surprised by how many businesses need to use 1099 forms with some regularity.
Reporting your bonus on your tax return Your Form W-2, which you receive at the beginning of the tax year, will include your bonus as part of your wages. Box 1 of your Form W-2 will reflect your taxable income, including both regular wages and any supplemental wages like bonuses.
The federal bonus tax withholding rate is typically 22%. However, employers could instead combine a bonus with your regular wages as though it's one of your usual paychecks—with your usual tax amount withheld. There are ways to reduce the tax impact of your bonus.
Bonuses are treated as income and thus subject to taxation, but there are ways to manage and reduce the amount of taxes that will be owed.
Request a Non-Financial Bonus You may be able to reduce taxes on your bonus to zero by asking your employer to make it a non-financial bonus. Examples of non-financial bonuses could include the ability to work from home or work flexible hours.
Bonuses and stock options are subject to federal taxes, but there's no additional state income tax on these earnings in Texas.
In 2024, federal tax on bonuses is 22% for up to $1 million in bonuses, with any amount above that taxed at 37%. Bonuses are reported as income on your tax return, either through Form W-2 or 1099-NEC, depending on your employment status.
