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Accounting types!! Bonus pay question for you...

S

scauffiel

Senior member
Let's say I currently make $75k a year. My bonus structure is set up so that quarterly I'm looking at around $20k. Now, being a bonus, it takes a 40% hit right off the top if it's classified as a bonus, right? So what I'm looking at doing is asking if they'll incorporate the bonus into my pay over the next quarters paychecks (six of them) so it gets taxed as pay. Is this a good idea or will it bone me in the end? Basically, which way will I get to keep more of my money? Straight lump or incorporated as pay?

Any help appreciated,
Steve
 
First of all, it's taxed at the same rate as your ordinary income. There is no special "bonus tax".

Second, whether you take it all at once or spread out over the year, the tax implications will be the same. You will pay the same amount either way.
 
nohting like yet another brag thread about how much your getting paid....take it and be happy your making money unlike countless others who are stuck without jobs this time of year.
 
You get paid $75k / year, yet your company shells out $80k / year for you in bonus'? How does that work, and where can I apply?
 
Originally posted by: ggnl
First of all, it's taxed at the same rate as your ordinary income. There is no special "bonus tax".

Second, whether you take it all at once or spread out over the year, the tax implications will be the same. You will pay the same amount either way.
Click to expand...

wrong, sorta.

Bonuses are not taxed at the same rate as your ordinary income when paid. Yes, when time to file they will be taxed as ordinary income, but when you get the actual check you are taxed 25% FIT, regardless of your normal withholdings. Then add 7.65% for FICA and then any state and local tax.
 
Originally posted by: MogulMonster
You get paid $75k / year, yet your company shells out $80k / year for you in bonus'? How does that work, and where can I apply?
Click to expand...

I think he gets paid $75k / year, $80k / year with bonus. So a bonus of $5k.
 
Originally posted by: scauffiel
Let's say I currently make $75k a year. My bonus structure is set up so that quarterly I'm looking at around $20k. Now, being a bonus, it takes a 40% hit right off the top if it's classified as a bonus, right? So what I'm looking at doing is asking if they'll incorporate the bonus into my pay over the next quarters paychecks (six of them) so it gets taxed as pay. Is this a good idea or will it bone me in the end? Basically, which way will I get to keep more of my money? Straight lump or incorporated as pay?

Any help appreciated,
Steve
Click to expand...

As long as the lump sum will not change your tax bracket, take the lump sum and put it in some treasury direct bonds so that it will be worth more than the quarterly payments would be.
 
Originally posted by: ggnl
First of all, it's taxed at the same rate as your ordinary income. There is no special "bonus tax".

Second, whether you take it all at once or spread out over the year, the tax implications will be the same. You will pay the same amount either way.
Click to expand...

Wrong, bonus pay is taxed at a higher rate. 25% for federal withholding and it varies by state. Here in CA it is 9.3%.
 
Normally, I would defer income until next year. But this is a special situation.

I do not know what tax bracket you are in and what our financial situation is either.

Consider this:

FICA: if you take the bonus this year you will pay Soc Sec taxes of 6.2% up to $87,900. Any salary/ordinary income over $87,900 will not be subject to Soc Sec. in 2005, the soc sec limits go up and more of your income will be subject to Soc Sec.

So, it may make sense to take all the bonus this year.

There is also the time value of money and job security.

1) A dollar today is worth more than a dollar 3 months from now.
2) what if you are no longer with the company will you still get your deferred bonus?
 
Originally posted by: frankie38
Normally, I would defer income until next year. But this is a special situation.

I do not know what tax bracket you are in and what our financial situation is either.

Consider this:

FICA: if you take the bonus this year you will pay Soc Sec taxes of 6.2% up to $87,900. Any salary/ordinary income over $87,900 will not be subject to Soc Sec. in 2005, the soc sec limits go up and more of your income will be subject to Soc Sec.

So, it may make sense to take all the bonus this year.

There is also the time value of money and job security.

1) A dollar today is worth more than a dollar 3 months from now.
2) what if you are no longer with the company will you still get your deferred bonus?
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good, valid points.

just to add, the Medicare portion of FICA, 1.45% has not income limit.
 
Originally posted by: Drakkon
nohting like yet another brag thread about how much your getting paid....take it and be happy your making money unlike countless others who are stuck without jobs this time of year.
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Nothing like another assclown that has to take a dump on a thread. I'm not bragging sh!tbird, blow. I AM thankful.

CPA: So, what would you suggest. BTW, I'm talking about a base pay of 75 with an additional 80 in bonus. However, this is for next year - I just want to set it up now while talking about it with the money guy. In the past, the amounts taken from bonuses have been roughly 40%, that's why I used that number.

Just need an answer I can understand! LOL! 🙂

S.
 
Originally posted by: scauffiel
Originally posted by: Drakkon
nohting like yet another brag thread about how much your getting paid....take it and be happy your making money unlike countless others who are stuck without jobs this time of year.
Click to expand...

Nothing like another assclown that has to take a dump on a thread. I'm not bragging sh!tbird, blow. I AM thankful.

CPA: So, what would you suggest. BTW, I'm talking about a base pay of 75 with an additional 80 in bonus. However, this is for next year - I just want to set it up now while talking about it with the money guy. In the past, the amounts taken from bonuses have been roughly 40%, that's why I used that number.

Just need an answer I can understand! LOL! 🙂

S.
Click to expand...

Do you contribute to 401K? This will also impact your bonus net and would be part of the 40%. 25+7.65+state/local if any + 401K deduction (pre-tax & post-tax) could make 40%.

It won't really make a difference if you lump sum it or have it paid over a period of time, EXCEPT if it will impact you for AMT purposes and that is hard to know without knowing all of your payroll deductions and your tax situation. If it might, then you may want to defer some bonus until next year. But for the most part, there is no immediate difference in lump sum payouts and bonus payouts paid over the year.
 
First of all, it's taxed at the same rate as your ordinary income. There is no special "bonus tax".

Second, whether you take it all at once or spread out over the year, the tax implications will be the same. You will pay the same amount either way.
Click to expand...

This is not entireley true. Many comapnies treat your "Bonus" as a "53rd" paycheck (as their are only 52 weeks in a year this is an extra paycheck).

Hence, since your bonus is recorded as a 53rd paycheck(which, mind you, ALWAYS will get taxed more than normal pay, as it is extra work) you will get taxed more. If your employer just gave you your last paychack AND your bouns all as the last check, then technically, you shouldn't get charged more.

And so, in theory, if it got incorporated in, your bonus wouldnt get taxed either.

~new
 
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