Many Americans receiving year-end bonuses may be surprised at the amount they actually receive, as up to a third can be withheld for taxes. The federal flat rate for bonus pay is 22%, plus Social Security, Medicare, and state taxes, totaling roughly 30%-35%. Kevin Knull of TaxStatus warns many overspend their bonus, not accounting for taxes.

For example, a $10,000 bonus for air traffic controllers may be reduced to just over $7,000 after withholdings. If the tax cost of a bonus is less than the 22% withholding rate, a tax refund may be received. Contributions to retirement accounts can lower taxable income. However, if tax costs exceed withholdings, the difference must be paid.

The 2025 IRA contribution limit is $7,000, or $8,000 for those 50 or older. The 401(k) limit is $23,500 with an additional $7,500 for those 50 or older, except for those aged 60 to 63, who have a higher limit of $11,250. Consider deferring a bonus to a lower tax year or contributing to a retirement account to save on taxes.

Cash and cash-equivalent gifts and bonuses are typically taxable, even if deducted from a regular paycheck. Conduit gifts and personal gifts from managers may be exceptions. Noncash gifts like hams or turkeys are considered de minimis fringe benefits and are not taxable. Be aware of tax implications when giving or receiving gifts in the workplace.

Read more at Yahoo Finance: Where’s the rest? Why your year-end bonus or gift may have shrunk