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Bonuses are usually based upon the productivity of an individual. Today's companies are relying less on salary and more on bonuses to attract and reward executives. Bonuses can be computed in several different ways, each yielding a different amount. The bonus percentage can be based on income
- before deducting the bonus and income taxes,
- after deducting the bonus, but before deducting income taxes,
- before deducting the bonus, but after deducting income taxes,
- after deducting the bonus and income taxes.
CALCULATING A BONUS BASED ON INCOME BEFORE DEDUCTING A BONUS OR TAXES
- Formula: bonus = bonus rate * income (B = BR * Y)
- Example: income = $75,000, bonus rate = 15%, and tax rate = 43%.
- Solution: B= .15($75,000) = $11,250
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