For some lucky workers, December means that year-end bonuses are on the way. This can be considered good news (especially since some companies are cutting budgets, laying off employees, or canceling bonuses). However, people are often surprised when their bonus money is lower than they expected. This situation – in which a large part of your paycheck seems to be missing – is due to the withholding of federal taxes and the so-called income tax.

Although you cannot change the tax withholding of the bonus, it is good to know how to pay the tax so that you know how much money to expect. Additionally, knowing how much pay will be coming into your account can help with year-end tax planning. This could include navigating tax changes for 2022, and trying to offset revenue through tax and tax cuts.

How to pay taxes: Why are bonuses so high?

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