coloradotaxguy <XXX[at]nospam.promessage.com> wrote:

- quote -

That is one option your employer has (and some bad payroll
programs consider it the only option).

- quote -

One of the others is "bonus tax rate" which is a special
withholding rate applicable to bonus payments. For
high-income taxpayers, it's well below their tax rate, so
they can end up severely underwithheld.

Seth

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Thomas Healy <tomhealycpa[at]earthlink.net> wrote:

- quote -

Right. My last employer withheld 25% for federal income tax
from bonuses, regardless of W4 exemptions or base salary.
Compound this with the bonus for the previous year being
paid out in the early part of the current year, therefore is
has full Social Security taken out.... plus Medicare, SDI
and state tax.

Those in the deferred compensation plan would sometimes get
no bonus check at all. (Consistent with the elections
they made, of course, but still surprises people.)

Steve

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"effi" <effi[at]ev1.net> wrote:
- quote -

And not in a positive way. I've found at least with payroll
services, that I know payroll tax law better than they do,
which should NEVER happen. Quite scary actually.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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Laker4Life wrote:

- quote -

Bonuses are taxed the same as any other salary/wage income.
What was the actual percentage withheld? ("About 50%" is
imprecise.)

Regards,
Bill

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Payroll taxes are withheld based on a single pay period.
The IRS and your employer do not take on the burden of
guessing if this is a one-time payment, what your income
might be the rest of the year, or what income you may have
from other jobs (all of which determine your final tax
bracket). Therefore, your withholding is determined as if
you made that much every pay period.

There are different methods available to calculate
withholding. However, employers are free to choose any of
the allowable methods.

Your bonus isn't "taxed" any differently than your other
income but your tax rate bracket isn't determined until you
file your return next year.

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FrankieX[at]gmail.com says...

- quote -

I can't be specific without more information such as your
state, and total income, but bonuses are not taxed at a
different rate than your regular salary/wages.

The taxes withheld on bonuses is based on a statuatory rate
25% for federal (you may have more withheld if you elect).
Each state has different rules on the withholding. For
example, I live in NJ, but work in New York City. My
marginal tax rate in New York is 6.35%, but the required
withholding rate on bonuses is over 8%.

A bonus is on top of your regular income, so having taxes
withheld at a rate approximating your marginal tax rate
reduces the probability that you will owe money come April
15th.

Say your bonus was $12,000 and you usually get paid twice a
month (24 times a year). If you added $500 to each paycheck,
the income tax affect is exactly the same as getting the
$12,000 lump bonus.

Gary

--
E-mail to the above address is rarely read. If you want to
contact me directly, please send an e-mail to: gary at
gdgoodman dot com.

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Laker4Life wrote:

- quote -

There's no science... just law. Bonuses are considered to
be supplemental wages. Assuming that we are not dealing
with supplemental wages in excess of $1,000,000, your
employer must withhold either the flat rate of 25% from the
bonus payment or the employer can add the payment to your
regular payment, compute the amount of withholding from the
published tables subtract what was withheld from your
regular pay and withhold the difference. Depending on the
size of the bonus, the second method could easily get you
close to the 35% tax rate. You would then have to add any
state income taxes plus medicare taxes. If you had not
already maxed out social security taxes, then add that
amount also.

--
Alan
http://taxtopics.net

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"Laker4Life" <FrankieX[at]gmail.com> wrote:

- quote -

perhaps the quickest way for you to get there is to speak
with the payroll department of your employer, you'll be
amazed at what they know


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"Laker4Life" <FrankieX[at]gmail.com> wrote:

- quote -

Take the top rate of 35% add state tax and Medicare, maybe
some Social Security if you haven't reached $90,000 before
the bonus. Not too difficult. The actual tax, of course,
depends on what's on your tax return when you file it next
year. If you calculate that you have had too much withheld,
you can always send your employer a new W-4 to claim more
withholding allowances during the rest of the year.

--
Tom Healy, CPA
Boulder, CO
Web: http://www.tomhealycpa.com

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"Laker4Life" <FrankieX[at]gmail.com> wrote:

- quote -

Questions about your paycheck should be referred to your
payroll department.

- quote -

I wasn't aware taxation was a science.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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Laker4Life" <FrankieX[at]gmail.com> wrote:

- quote -

50% Federal Withholding Taxes, or
50% Federal plus State plus local (if any) or
50% Federal Withholding plus FICA plus Medicare plus State plus Local

The last would not be unusual. The first would.

--
Vic Roberts
Replace xxx with vdr in e-mail address.

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"Laker4Life" <FrankieX[at]gmail.com> writes:

- quote -

They aren't. They are taxed *exactly* the same as all your
other wages. Don't confuse *withholding* with the actual
*tax*. Just because $N were withheld from a check doesn't
mean the tax on that money was $N (it could be more, it
could be less).

- quote -

Companies generally use two withholding methods for bonuses.
The first is to withhold federal tax (and state, if
applicable) at a flat rate (so withhold 25% or 30% of the
entire amount) instead of applying the graduated withholding
they do to regular paychecks. The other way is to treat the
bonus as if it were just another paycheck and apply the
graduated withholding calculation.

Depending on what tax bracket your overall income lands you
in at the end of the year, either approach can lead to
significant overwithholding. But you lose nothing (but
interest on funds) because that overwithholding means you
owe less (or get a bigger refund) when you file your return.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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"Laker4Life" <FrankieX[at]gmail.com> wrote:

- quote -

They're not; they are, in fact, taxed exactly the same way
as your other wages. The difference is that a large
one-time payment can result in higher (or lower) than
necessary withholding from the payment, depending on the
withholding method your employer chooses and your other
income. You need to look at the year as a whole to see
whether yours is so.

--
Phil Marti
Clarksburg, MD

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You company may have a stupid payroll program
that treats the bonus as a periodic income payment-
that is multipies it by 12 or 24 to annualize it.
That may put you in the highest tax bracket.

Bonuses are taxed ar regular income.
One idea is to estimate your 2005 income tax
including your bonus and adjust the remaining
year withholding.

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"Laker4Life" <FrankieX[at]gmail.com> wrote

- quote -

Because bonus was taxed as though it was your regular
periodic income. The payroll department could have done
something so less withholding was withheld, but that takes
work. One standard and simple method is treat bonuses as
though they were monthly or quarterly income.

There is nothing you can due this year except increase
you deductions to offset the previous withholding.

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My company wrapped up its fiscal year last month and started
handing out bonuses. Can someone here explain why bonuses
are taxed rediculously high?

My bonus, which was issued as a seperate check was taxed
about 50%!. I work for a Fortune 1000 company with 900
employees. What is the science of taxing bonuses?

Thanks for listening.

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