Taxes on bonuses

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I am far from an expert on taxes. As a company, we do bonuses (like many) but we have one employee that complains about how much tax is taken out of his bonus(es). Is there anything we or he could/should do differently? I'd just come to terms many years ago that bonuses are taxed at a higher rate and that was that. Thoughts?

Bonuses are treated as supplemental income and taxed at a flate rate of 22% by the Fed. Depending on his tax bracket he may get a refund at the end of the year or end up owing more. It all comes out in the wash at the end of the year when you do your taxes. Nothing you can do about it besides increase base salary, which is great for the individual, but not something an employer will want to do as they carry that base into the next year.

No, this is incorrect. All income is taxed the same. Depending on how 'supplemental' income is paid, it may or may not be subject to a different withholding rate. The supplemental income withholding rate may be higher or lower than your ordinary income withholding rate, which could result in a tax refund or tax bill at the end of the year. While you sort of get to the right answer at the end, you need to understand that withholding rates are not the same as tax rates.

No, all income is not taxed the same, pp. I know what you are trying to say but this is wrong.

You mean wages, I believe. But that is subject to progressive marginal income tax rates, for starters.

Income from capital is subject to very different income tax rules than wages.

Partnership income similarly treated differently.

You’re confusing the issue. As PP pointed out it’s the withholding rate that is often different for bonus wages and leads to questions from employees. They are taxed the same as the rest of the paycheck income which will be trued up when taxes are filed. The employee W2 issued at the end of the year will add up all paycheck and bonus income into a single number for tax purposes.

[Anonymous]

Bonuses are taxed as ordinary income- so depending on your tax bracket, they will be taxed just like money from a paycheck. DH got a bonus at the end of the year- it was taxed at 22% and we just sent a large 4th quarter check to cover the rest because our tax bracket is higher than 22%.

[Anonymous]

Anonymous wrote:Bonuses are taxed as ordinary income- so depending on your tax bracket, they will be taxed just like money from a paycheck. DH got a bonus at the end of the year- it was taxed at 22% and we just sent a large 4th quarter check to cover the rest because our tax bracket is higher than 22%.

Also, all of this other stuff is confusing. A regular cash bonus is treated by the IRS and state tax authorities as income. Your employer will tax it at 22% plus the applicable state taxes. If your tax bracket is higher than 22%, you will owe the difference come tax time. If your rate is lower than 22%, then you may get a refund. It's straightforward.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Bonuses are taxed as ordinary income- so depending on your tax bracket, they will be taxed just like money from a paycheck. DH got a bonus at the end of the year- it was taxed at 22% and we just sent a large 4th quarter check to cover the rest because our tax bracket is higher than 22%.

Also, all of this other stuff is confusing. A regular cash bonus is treated by the IRS and state tax authorities as income. Your employer will tax it at 22% plus the applicable state taxes. If your tax bracket is higher than 22%, you will owe the difference come tax time. If your rate is lower than 22%, then you may get a refund. It's straightforward.

It’s straightforward but people keep using the word tax in a confusing way. Your bonus had taxes withheld at 22% for federal taxes plus state taxes (and other things like FICA and medicare). Your bonus was not taxed at 22%.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Bonuses are taxed as ordinary income- so depending on your tax bracket, they will be taxed just like money from a paycheck. DH got a bonus at the end of the year- it was taxed at 22% and we just sent a large 4th quarter check to cover the rest because our tax bracket is higher than 22%.

Also, all of this other stuff is confusing. A regular cash bonus is treated by the IRS and state tax authorities as income. Your employer will tax it at 22% plus the applicable state taxes. If your tax bracket is higher than 22%, you will owe the difference come tax time. If your rate is lower than 22%, then you may get a refund. It's straightforward.

It’s straightforward but people keep using the word tax in a confusing way. Your bonus had taxes withheld at 22% for federal taxes plus state taxes (and other things like FICA and medicare). Your bonus was not taxed at 22%.

Right, but the IRS views it as income the same way they view your regular paycheck. Employers take out 22% for Federal taxes but you might owe the government more (or less) depending on your tax bracket. I do this every year for my DH because a lot of his income is bonuses and RSU vesting (which is treated exactly the same way as a cash bonus). It's kind of a pain, but I just keep our earnings in a spreadsheet. Last year, we were within a few hundred dollars when we filed our taxes.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Bonuses are taxed as ordinary income- so depending on your tax bracket, they will be taxed just like money from a paycheck. DH got a bonus at the end of the year- it was taxed at 22% and we just sent a large 4th quarter check to cover the rest because our tax bracket is higher than 22%.

Also, all of this other stuff is confusing. A regular cash bonus is treated by the IRS and state tax authorities as income. Your employer will tax it at 22% plus the applicable state taxes. If your tax bracket is higher than 22%, you will owe the difference come tax time. If your rate is lower than 22%, then you may get a refund. It's straightforward.

It’s straightforward but people keep using the word tax in a confusing way. Your bonus had taxes withheld at 22% for federal taxes plus state taxes (and other things like FICA and medicare). Your bonus was not taxed at 22%.

Right, but the IRS views it as income the same way they view your regular paycheck. Employers take out 22% for Federal taxes but you might owe the government more (or less) depending on your tax bracket. I do this every year for my DH because a lot of his income is bonuses and RSU vesting (which is treated exactly the same way as a cash bonus). It's kind of a pain, but I just keep our earnings in a spreadsheet. Last year, we were within a few hundred dollars when we filed our taxes.

You're saying the exact same thing as the PP you're arguing with.

[Anonymous]

The dumber the person, the more they complain.
Ignore him.
- Head of HR

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I am far from an expert on taxes. As a company, we do bonuses (like many) but we have one employee that complains about how much tax is taken out of his bonus(es). Is there anything we or he could/should do differently? I'd just come to terms many years ago that bonuses are taxed at a higher rate and that was that. Thoughts?

Bonuses are treated as supplemental income and taxed at a flate rate of 22% by the Fed. Depending on his tax bracket he may get a refund at the end of the year or end up owing more. It all comes out in the wash at the end of the year when you do your taxes. Nothing you can do about it besides increase base salary, which is great for the individual, but not something an employer will want to do as they carry that base into the next year.

None of this is accurate. Not even remotely. There is no “flat rate tax” of 22% on supplemental income. It’s not a thing.

A bonus is subject to withholding taxes when paid. The actual tax owed depends on your top marginal income tax rate, which may be higher or lower depending on your overall taxable income.

This really isn’t hard.

It's actually 100% accurate. My apologies for not using the word "withheld". If you continued reading you would see that I go on to say the same thing you do. Taxes will be higher or lower depeding on tax bracket.
"If your supplemental wages are identified separately from your salary (as a bonus, for example), your employer must withhold taxes using one of the following two methods:
Withhold at the supplemental rate of 22 percent or
Combine your regular wages for the pay period with your supplemental wages and treat the total as one payment of regular wages and then withhold taxes using ordinary withholding rates."

[Anonymous]

i asked my Director of Finance about best way to handle taxes for bonuses. Basically they take a bunch out when they give it to you BUT in the end, when they give you your W2, it's all just salary for the year. When you do your taxes, it will all balance out.

[Anonymous]

Anonymous wrote:They aren’t taxed at a higher rate, but taxed as if you earn that much every two weeks. You can adjust your deductions with payrolls in the weeks before if you want less taken out.

This. I always assumed that in the pay period where I receive the bonus it "looks like" I make that additional income for all pay periods, hence I am taxed at a much higher rate. So for instance, last year my salary was $176,300 and I received a $5,400 bonus. I was not taxed as if I made $181,700, but as if I made $176,300/26 pay periods + $5400. That would make it appear as if my salary was $316,700 per year! If I am correct, when you file your annual taxes, you would theoretically get back the difference between what was withheld and what should have been withheld for your normal salary, so either you would get a bigger refund, or owe less tax, however your situation shakes out.

[Anonymous]

Anonymous wrote:

Anonymous wrote:They aren’t taxed at a higher rate, but taxed as if you earn that much every two weeks. You can adjust your deductions with payrolls in the weeks before if you want less taken out.

This. I always assumed that in the pay period where I receive the bonus it "looks like" I make that additional income for all pay periods, hence I am taxed at a much higher rate. So for instance, last year my salary was $176,300 and I received a $5,400 bonus. I was not taxed as if I made $181,700, but as if I made $176,300/26 pay periods + $5400. That would make it appear as if my salary was $316,700 per year! If I am correct, when you file your annual taxes, you would theoretically get back the difference between what was withheld and what should have been withheld for your normal salary, so either you would get a bigger refund, or owe less tax, however your situation shakes out.

Companies can choose to treat it as if you made that much for the pay period, or withhold at 22% (except if the bonus is over $1M, in which case everything over $1M has to be withheld at 37%).

[Anonymous]

Anonymous wrote:

Anonymous wrote:I am far from an expert on taxes. As a company, we do bonuses (like many) but we have one employee that complains about how much tax is taken out of his bonus(es). Is there anything we or he could/should do differently? I'd just come to terms many years ago that bonuses are taxed at a higher rate and that was that. Thoughts?

Bonuses are treated as supplemental income and taxed at a flate rate of 22% by the Fed. Depending on his tax bracket he may get a refund at the end of the year or end up owing more. It all comes out in the wash at the end of the year when you do your taxes. Nothing you can do about it besides increase base salary, which is great for the individual, but not something an employer will want to do as they carry that base into the next year.

Good God. I am assuming someone else corrected this, but this is flat out wrong. Stop spouting this nonsense.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I am far from an expert on taxes. As a company, we do bonuses (like many) but we have one employee that complains about how much tax is taken out of his bonus(es). Is there anything we or he could/should do differently? I'd just come to terms many years ago that bonuses are taxed at a higher rate and that was that. Thoughts?

Bonuses are treated as supplemental income and taxed at a flate rate of 22% by the Fed. Depending on his tax bracket he may get a refund at the end of the year or end up owing more. It all comes out in the wash at the end of the year when you do your taxes. Nothing you can do about it besides increase base salary, which is great for the individual, but not something an employer will want to do as they carry that base into the next year.

None of this is accurate. Not even remotely. There is no “flat rate tax” of 22% on supplemental income. It’s not a thing.

A bonus is subject to withholding taxes when paid. The actual tax owed depends on your top marginal income tax rate, which may be higher or lower depending on your overall taxable income.

This really isn’t hard.

It's actually 100% accurate. My apologies for not using the word "withheld". If you continued reading you would see that I go on to say the same thing you do. Taxes will be higher or lower depeding on tax bracket.
"If your supplemental wages are identified separately from your salary (as a bonus, for example), your employer must withhold taxes using one of the following two methods:
Withhold at the supplemental rate of 22 percent or
Combine your regular wages for the pay period with your supplemental wages and treat the total as one payment of regular wages and then withhold taxes using ordinary withholding rates."

Sorry, NP here, it's completely wrong. "Taxed and "withheld" are fundamentally different things, and this isn't a matter of a debatable word choice.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:They aren’t taxed at a higher rate, but taxed as if you earn that much every two weeks. You can adjust your deductions with payrolls in the weeks before if you want less taken out.

This. I always assumed that in the pay period where I receive the bonus it "looks like" I make that additional income for all pay periods, hence I am taxed at a much higher rate. So for instance, last year my salary was $176,300 and I received a $5,400 bonus. I was not taxed as if I made $181,700, but as if I made $176,300/26 pay periods + $5400. That would make it appear as if my salary was $316,700 per year! If I am correct, when you file your annual taxes, you would theoretically get back the difference between what was withheld and what should have been withheld for your normal salary, so either you would get a bigger refund, or owe less tax, however your situation shakes out.

Companies can choose to treat it as if you made that much for the pay period, or withhold at 22% (except if the bonus is over $1M, in which case everything over $1M has to be withheld at 37%).

Payroll person here. The above is pretty on point. Company pays you a bonus taxed as supplement income (our company runs a special pay cycle so the bonus is paid separately from the regular payroll). At the end of the year, Box 1 (taxable gross) on your W2 includes the bonus amount pre taxes. Employee will sort out any taxes due or refund w IRS during tax season.

[Anonymous]

My husband's company offers a deferred compensation option where he can defer his bonus until after he retires. The money is invested and he only pays income taxes on it when he withdraws the funds...preferably when he is in a lower tax bracket.