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For those receiving their 2022 year-end bonus in the first few months of 2023, think about ways you can offset that taxable income for when you file a return next year. For example, donating to charity or contributing to a retirement savings account both qualify as a tax deduction that can reduce how much you owe.

You can't give an employee a bonus without taxes. The IRS mandates that taxes be withheld from a bonus payment at either their regular federal withholding rate if it's paid with their regular wages or at the 22% supplemental rate.

This method is used when the employer pays the bonus and withholds the California bonus tax rate of 10.23% and 22% federal flat rate. The other way an employer can withhold bonus tax is through the aggregate method. This is when the bonus is issued with your regular salary payment and you are taxed at that higher rate.

The percentage method The withholding rate for supplemental wages is 22 percent. That rate will be applied to any supplemental wages like bonuses up to $1 million during the tax year. If your bonus totals more than $1 million, the withholding rate for any amount above $1 million increases to 37 percent.