Need someone knowledgeable about taxes

[MV Wanderlust]

I put this in the Red Tape subforum. Seems appropriate.

Let's say your company is going to pay you a bonus. Company HR says they will be taxing it at 22% for federal income tax but there could be supplemental taxes due. I live in Florida so there are no state taxes.

Turbotax and other sites are saying that bonuses are considered supplemental income and are taxed at 25%. Is that in addition to the regular tax of 22% or in place of? "In addition to" would mean a total tax rate of 47% on the bonus! Some of you are probably rolling your eyes at the stupid question but I've heard of some people being hit with 40% taxes on a bonus.

Thoughts? (Yeah, I know. Worth every penny I'm paying for it. )

John

[redneckrob]

So first off, contact a CPA, don't depend on a jackwagon on the internet for tax advice!
Having said that, this jackwagon will tell you that income is income under the U.S. tax code. There is no separate rate for "bonus" income vs "regular" income. Your marginal tax rate is based on whatever tax bracket you fall into, it's that simple.

Payroll withholding companies are required to withhold the appropriate amount for you so that if you're an average person you won't get hit by an extra big tax bill or refund. This means they are basically taking your anticipated total salary and withhold based on the blended rate you'll see if that's all you earn during the year. Since the tax rate is graduated by income, this blended rate is lower than your marginal rate, which is the rate you pay on each additional dollar you earn on top of what they initially calculated. As a result, when they do withholdings for a bonus, use the 22% rate, because the IRS tells them to because it better approximates your marginal rate. This may or may not be accurate depending on your other income. But in any event you're not paying more taxes because it was a bonus, you may be paying more taxes because the more you make the higher your tax rate on those last dollars earned. And at the end of the day, withholdings aren't taxes, they're an estimate, so your withholding rate isn't your tax rate.

[jkishel]

You are confusing withholding with tax.

[denverd0n]

Originally Posted by jkishel

You are confusing withholding with tax.

Exactly. A mistake that a whole lot of people make.


Your company is not "taxing" you. They only withhold money, and forward it to the IRS, so that you will not be required to send the IRS a $10k or $20k check at the end of the year.


What your actual tax rate on the bonus will be is entirely dependent on your total taxable income at the end of the year, which will determine your marginal tax rate.

[skipmac]

I will second all the above, including the recommendation to speak with a tax expert.


That being said, I also live in FL and for 20+ years worked jobs that included an annual bonus at the end of the year based on sales, etc. The bonus income was never differentiated from my monthly salary on W2s or anywhere else and both were included in the same pot of money on my tax returns.

[Shrew]

They can Withhold slightly more money on a bonus, just in case the bonus pushes your total income into the next tax bracket. However, the US IRS doesn't tax the bonus at a higher level. Anything withheld beyond your taxes due is returned in your income tax return check.

[Cheechako]

I have no help on the tax, but when I retired, I asked for the bonus to be paid after the start of the new year. My salary was high while working, so putting it in the new year, my earnings were very low. Just a thought .....if your income is changing.

[letsgetsailing3]

You don't really need a tax expert to know the following:

1) Your bonuse will be taxed at regular income tax rates.

2) The company is withholding at a projected tax rate, so you don't get into trouble next year at tax time.

Other than that, enjoy your bonus.