Are company bonuese taxed extra?

[E equals MC2]

A nice little boost of $1000 quarterly bonus...

I only get to keep $624.53...

That's 37.6% of rapage.... 🙁

 

[nakedfrog]

Yes, but I hear you get it back in taxes.

 

[MercenaryForHire]

As a Canadian, I feel I have to say

Now you know what it feels like!

😀

- M4H

 

[msparish]

How much tax is taken out is totally automated, based on how large the check is. For this check, (assuming you're paid twice a month), it looks like you are going to make about $24000 more than what you really will over the entire year. Hence, you probably got bumped into a higher tax bracket for this week.

Edit: You'll get the money back at tax time, or you could lower your witholdings for the next couple weeks to make up for it.

Edit 2: Don't pay attention to this post...read CPA's further down.

 

[DaveSimmons]

It's taken out as if you were paid that much extra all the time, but you get back the difference when you file your taxes.

 

[E equals MC2]

Originally posted by: msparish
How much tax is taken out is totally automated, based on how large the check is. For this check, (assuming you're paid twice a month), it looks like you are going to make about $24000 more than what you really will over the entire year. Hence, you probably got bumped into a higher tax bracket for this week.

Edit: You'll get the money back at tax time, or you could lower your witholdings for the next couple weeks to make up for it.

How the heck did you come up with $24000 figure, my original post contained no point of reference. wth?

 

[TitanDiddly]

Originally posted by: MercenaryForHire
As a Canadian, I feel I have to say

Now you know what it feels like to spend 1/3 of your money on weed!

😀

- M4H

Fixed.

 

[Strk]

Originally posted by: DaveSimmons
It's taken out as if you were paid that much extra all the time, but you get back the difference when you file your taxes.

Do you mean you would get back the difference of 37.6% (his example) and whatever your actual tax bracket is? Say 25%.

 

[MercenaryForHire]

Originally posted by: TitanDiddly

Originally posted by: MercenaryForHire
As a Canadian, I feel I have to say

Now you know what it feels like to spend 1/3 of your money on weed!

😀

- M4H

Fixed.

Hell, if that's what my government tax money was going towards, you could colour me "tickled pink."

Or maybe just my eyes. 😛 😀

- M4H

 

[sygyzy]

Originally posted by: E equals MC2

Originally posted by: msparish
How much tax is taken out is totally automated, based on how large the check is. For this check, (assuming you're paid twice a month), it looks like you are going to make about $24000 more than what you really will over the entire year. Hence, you probably got bumped into a higher tax bracket for this week.

Edit: You'll get the money back at tax time, or you could lower your witholdings for the next couple weeks to make up for it.

How the heck did you come up with $24000 figure, my original post contained no point of reference. wth?

Yes it did - $1000, quarterly, bonus.

 

[drinkmorejava]

I'm pretty sure, it's taxed as normal income. It's possible that amount pushed into the next tax bracket.

 

[E equals MC2]

Originally posted by: sygyzy

Originally posted by: E equals MC2

Originally posted by: msparish
How much tax is taken out is totally automated, based on how large the check is. For this check, (assuming you're paid twice a month), it looks like you are going to make about $24000 more than what you really will over the entire year. Hence, you probably got bumped into a higher tax bracket for this week.

Edit: You'll get the money back at tax time, or you could lower your witholdings for the next couple weeks to make up for it.

How the heck did you come up with $24000 figure, my original post contained no point of reference. wth?

Yes it did - $1000, quarterly, bonus.

$1000 x 4 = $4000 extra a year. Where did he get $24000? Am I missing somehting?

 

[dullard]

Originally posted by: E equals MC2
How the heck did you come up with $24000 figure, my original post contained no point of reference. wth?

Msparish described all that is needed. If you get paid twice a month, then the computer just assumed you got a $1,000*2*12 = $24,000 yearly raise. And it taxed you appropriately for that type of raise. The computer assumes this $1000 is permanently added to your salary with each paycheck. It doesn't realize it was just a bonus.

Of course, Msparish stated that twice a month assumption incorrectly, but the point is the same.

That is just the way it often works at many companies (I've had it happen at 3 so far - large and small). If you work at a nicer company, they'd write a separate bonus check and this wouldn't be a problem.

 

[E equals MC2]

Originally posted by: dullard

Originally posted by: E equals MC2
How the heck did you come up with $24000 figure, my original post contained no point of reference. wth?

Msparish described all that is needed. If you get paid twice a month, then the computer just assumed you got a $1,000*2*12 = $24,000 yearly raise. And it taxed you appropriately for that type of raise. The computer assumes this $1000 is permanently added to your salary with each paycheck. It doesn't realize it was just a bonus.

Of course, Msparish stated that twice a month assumption incorrectly, but the point is the same.

Ah, now I get it. I'm taxed as if I'm = Original Salary + $1000 quarterly bonus counted as biweekly payout = appropriate new tax bracket.

 

[sniperruff]

Originally posted by: E equals MC2

Originally posted by: sygyzy

Originally posted by: E equals MC2

Originally posted by: msparish
How much tax is taken out is totally automated, based on how large the check is. For this check, (assuming you're paid twice a month), it looks like you are going to make about $24000 more than what you really will over the entire year. Hence, you probably got bumped into a higher tax bracket for this week.

Edit: You'll get the money back at tax time, or you could lower your witholdings for the next couple weeks to make up for it.

How the heck did you come up with $24000 figure, my original post contained no point of reference. wth?

Yes it did - $1000, quarterly, bonus.

$1000 x 4 = $4000 extra a year. Where did he get $24000? Am I missing somehting?

he assumed you get paid twice a week, there are 12 months, so there are 24 paydays. an extra $1000 this payday will get you assumed for $1000 x 24, = $24000

BUT, there are 52 weeks in a year, hence his math is still wrong, it'd be $1000 x 26 = $26000

 

[CPA]

Originally posted by: msparish
How much tax is taken out is totally automated, based on how large the check is. For this check, (assuming you're paid twice a month), it looks like you are going to make about $24000 more than what you really will over the entire year. Hence, you probably got bumped into a higher tax bracket for this week.

Edit: You'll get the money back at tax time, or you could lower your witholdings for the next couple weeks to make up for it.

wrong, all bonuses are taxed at a Federal Rate of 25%. Then you then you have 7.65% for FICA. Bonuses are considered supplementary compensation and not normal wages. Your state may also have a pre-set rate that would make the effect even larger.

 

[CPA]

Originally posted by: drinkmorejava
I'm pretty sure, it's taxed as normal income. It's possible that amount pushed into the next tax bracket.

it isn't. read above.

 

[dullard]

Originally posted by: CPA
wrong, all bonuses are taxed at a Federal Rate of 25%. Then you then you have 7.65% for FICA. Bonuses are considered special compensation and not normal wages. Your state may also have a pre-set rate that would make the effect even larger.

I think you misread his post, CPA.

 

[CPA]

Originally posted by: dullard

Originally posted by: CPA
wrong, all bonuses are taxed at a Federal Rate of 25%. Then you then you have 7.65% for FICA. Bonuses are considered special compensation and not normal wages. Your state may also have a pre-set rate that would make the effect even larger.

I think you misread his post, CPA.

How? He was paid a bonus and wanted to know why his taxes were so high. Some posters commented it was based on his annual wage and his tax bracket. That is wrong. Bonuses, regardless of your nominal tax rate is taxed at 25% for withholding.

 

[Strk]

Originally posted by: CPA

Originally posted by: dullard

Originally posted by: CPA
wrong, all bonuses are taxed at a Federal Rate of 25%. Then you then you have 7.65% for FICA. Bonuses are considered special compensation and not normal wages. Your state may also have a pre-set rate that would make the effect even larger.

I think you misread his post, CPA.

How? He was paid a bonus and wanted to know why his taxes were so high. Some posters commented it was based on his annual wage and his tax bracket. That is wrong. Bonuses, regardless of your nominal tax rate is taxed at 25% for withholding.

But is it more when you initially get the bonus and the adjustment is something done when you file your taxes?

 

[msparish]

Originally posted by: CPA

Originally posted by: dullard

Originally posted by: CPA
wrong, all bonuses are taxed at a Federal Rate of 25%. Then you then you have 7.65% for FICA. Bonuses are considered special compensation and not normal wages. Your state may also have a pre-set rate that would make the effect even larger.

I think you misread his post, CPA.

How? He was paid a bonus and wanted to know why his taxes were so high. Some posters commented it was based on his annual wage and his tax bracket. That is wrong. Bonuses, regardless of your nominal tax rate is taxed at 25% for withholding.

Didn't know that. Thanks CPA.

 

[CPA]

Originally posted by: Strk

Originally posted by: CPA

Originally posted by: dullard

Originally posted by: CPA
wrong, all bonuses are taxed at a Federal Rate of 25%. Then you then you have 7.65% for FICA. Bonuses are considered special compensation and not normal wages. Your state may also have a pre-set rate that would make the effect even larger.

I think you misread his post, CPA.

How? He was paid a bonus and wanted to know why his taxes were so high. Some posters commented it was based on his annual wage and his tax bracket. That is wrong. Bonuses, regardless of your nominal tax rate is taxed at 25% for withholding.

But is it more when you initially get the bonus and the adjustment is something done when you file your taxes?

Assuming that your effective tax rate is lower than 25%, yes you should see it back as a refund. But regardless of what your normal withholding is (dollar wise or percentage), bonuses are withheld at 25%.

 

[dullard]

Originally posted by: CPA
How? He was paid a bonus and wanted to know why his taxes were so high. Some posters commented it was based on his annual wage and his tax bracket. That is wrong. Bonuses, regardless of your nominal tax rate is taxed at 25% for withholding.

Too bad that isn't the way many businesses do it. They just give you a one month raise. And that isn't at a 25% withholding.

 

[CPA]

Originally posted by: msparish

Originally posted by: CPA

Originally posted by: dullard

Originally posted by: CPA
wrong, all bonuses are taxed at a Federal Rate of 25%. Then you then you have 7.65% for FICA. Bonuses are considered special compensation and not normal wages. Your state may also have a pre-set rate that would make the effect even larger.

I think you misread his post, CPA.

How? He was paid a bonus and wanted to know why his taxes were so high. Some posters commented it was based on his annual wage and his tax bracket. That is wrong. Bonuses, regardless of your nominal tax rate is taxed at 25% for withholding.

Didn't know that. Thanks CPA.

no problem. Personally, I think it's a load of crap, but the underlying premise is to hit highly paid employees with a large enough tax rate to offset a possible low withholding claim in their normal wages. Remember you can use the W4 to claim whatever you want. If they based the rate on normal withholding you could have highly paid employees changing their withholdings just prior to bonus payouts, effectively reducing the tax withheld and then they wouldn't owe it until the following April. Uncle Sam would rather have the money 😉

 

[CPA]

Originally posted by: dullard

Originally posted by: CPA
How? He was paid a bonus and wanted to know why his taxes were so high. Some posters commented it was based on his annual wage and his tax bracket. That is wrong. Bonuses, regardless of your nominal tax rate is taxed at 25% for withholding.

Too bad that isn't the way many businesses do it.

You are probably right, but in an audit if the IRS deemed the payouts as bonuses they would get nailed. My guess is most payroll clerks/supervisors are unaware of the rules or are pushed by senior leadership to ignore them.

BTW, my main job is as a payroll accounting department manager. I am constantly asked about this during bonus season at my company.