Is it good to put no exemptions and get a tax return later?

[SuperTool]

Something got me thinking. I got a bonus that was grossed up, meaning it was made so that after taxes it would be a certain amount. I am guessing the company uses my w-2 to decide how much to gross it up based on what gets deducted. So if I put no deductions, wouldn't the gross up be higher? So you would get the same bonus after taxes, plus a return from the IRS of the money that the company overpaid to gross it up.
Or are all bonuses taxed at the same rate?
I actually have no deductions anyways, but just hypothetically thinking, does it make sense?

 

[Noirish]

i thought they just add the bonus on top of your gross so you better hope it doesn't push you into the next bracket.

 

[KingNothing]

Originally posted by: SuperTool
Something got me thinking. I got a bonus that was grossed up, meaning it was made so that after taxes it would be a certain amount. I am guessing the company uses my w-2 to decide how much to gross it up based on what gets deducted. So if I put no deductions, wouldn't the gross up be higher? So you would get the same bonus after taxes, plus a return from the IRS of the money that the company overpaid to gross it up.
Or are all bonuses taxed at the same rate?
I actually have no deductions anyways, but just hypothetically thinking, does it make sense?

It depends on whether or not you have investments. The reason that getting a tax return is bad is because it means you gave the government an interest free loan for a year. Hypothetically, you could be investing that money and getting something out of it. If you just let it sit in a checking account though, it doesn't matter. So to know whether or not this would be a good thing, you would need to calculate how much your investments would make vs. how much you would get back from the "grossing up" of your bonus.

Not that I've ever heard of a company doing that.

 

[Jeraden]

Your bonus isn't taxed at your regular withholding rate. It would be a supplemental earning and taxed at a flat 28% for federal.

Well it used to be 28% at least, it might have changed in the past couple years. But it should be a flat percent whatever the actual number is.

 

[HardcoreRobot]

it doesnt really matter if you get pushed to the next bracket, you only pay that higher tax on the amount thats over the limit. (its not like all of a sudden all your income will then get taxed at teh higher rate)

 

[SuperTool]

So I noticed a bonus that was about 175% of the cash bonus I expected, so I am assuming the 75% is added to make the after tax bonus the same. So I am wondering if they calculate how much to add on top based on the withholding rate, or a fixed amount.

 

[Jeraden]

Originally posted by: SuperTool
So I noticed a bonus that was about 175% of the cash bonus I expected, so I am assuming the 75% is added to make the after tax bonus the same. So I am wondering if they calculate how much to add on top based on the withholding rate, or a fixed amount.

It would depend on what payroll system you use. A good payroll system will have built-in support for grossups. A simple system would require someone to run a test pay calculation on you, see how many taxes came out, then do some math to figure out how much they actually need to give you in order for you to net to your actual bonus. If you have a large company, the system probably automates it. If its a smaller company, theres a chance they might just give you a flat percentage more, but thats a bit unlikely as people will complain if they end up not being grossed up properly.

I work in the payroll dept at my company, which is why I have the inside scoop here.