The IRS views any bonus you receive as wages. This means that almost all bonuses are taxed.Federal and California laws provide a formula for calculating overtime premiums owed for productivity bonus payments. A W4 form, or "Employee's Withholding Certificate," is an IRS tax document that employees fill out and submit to their employers. Need to withhold more money from your paycheck for taxes, decrease the number of allowances you claim, or have additional money taken out. The law clearly states that employers, for the most part, cannot withhold or deduct wages that the employee already earned. One of the most effective ways to reduce taxes on a bonus is to reduce your gross income with a contribution to a taxdeferred retirement account. Fill out form WG-005 indicating that you do not employ the person. CA State Tax - Getting Started California Tax Filing Status What does Head of Household Mean? Can you assist a new employee in completing the W-4 form?