What about bonuses and fringe benefits?
There are numerous types of payments made to employees that are not "regular wages." Most of these are subject to withholding for Federal Income Tax and Social Security Tax, as well as state and local withholdings. These types of payments include: bonuses, commissions, awards, portions of dependent care and educational assistance programs, payment of some group term life insurance, excess mileage and personal use of a company car, and others.

Taxation of fringe benefits and awards is an area that is constantly changing as ways are sought to increase governmental revenues. Much of the new legislation each year at the state and federal levels is targeted at altering the taxation of payroll benefits. You should consult with your financial advisor before making any assumptions as to the taxability of any benefits that you may choose to provide to your employees.

The IRS' Circular E, Employer's Tax Guide, contains additional information on withholding and taxation of payments. Call the Internal Revenue Service and request one at 1-800-TAX-FORM or by visiting the IRS Web site.