The IRS requires that a portion of our pay/wages (withholding) be taken out every pay period and forwarded to the IRS by our employer. This amount is an approximation of what our final tax obligation will be when we file our tax returns. The government wants these payments to be made during the year so we don't end up owing the IRS thousands of dollars at tax time and potentially not paying it. They get an approximation of our tax liability that way and it accumulates all during the year. When we file our tax returns the bonus amount is just added to our wages, etc. and we compute our final tax obligation for the year. Some may have to pay more and some will get a refund depending on how much they had withheld during the year. In any event, the bottom line is that the actual TAX on the bonus is the same rate as the marginal rate on our wages, etc. No special TAX rate just because it's a bonus payment.
Whew, I need a drink now!
Very good - but now we know that you don't work for YRC - you work for H&R BLOCK!! You forgot to explain how the W4 form tells your employer at which rate to withhold taxes... :)
How was the drink?