Why do we have to pay tax on extra bonuses? My company offers a $500 referral bonus if a friend joins and stays for at least six months. I was excited to see it added to my paycheck, but after taxes, it was only a portion of the $500. That felt a bit disappointing. I wish bonuses could just be paid as they are, without deductions.

Does anyone else feel it’s unfair to pay taxes on bonuses too, or is it just one of those things we have to accept?

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Both can be true; you can feel it’s unfair and acknowledge it’s just one of those things we have to accept. But as far as employers are concerned, they’re legally required to withhold taxes from all wages, and that includes supplemental income in the form of bonuses.

That said, employers do have a way to legally work around this- they effectively increase the bonus to account for the amount that would be withheld. But that obviously isn’t popular to employers because they’re effectively paying the bonus plus the amount withheld, and in most cases the bonus would effectively end up being higher for the employee than originally stated come tax time because most people have more withheld than what they’ll end up owing at tax time and get the difference back in their refund.

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I understand employers have legal requirements to withhold the tax from everything they pay to an employees, I was just upset witht the idea of it. I wish government makes some amendments for employers not to do it.

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