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Adjusting tax withholding for annual bonus
Posted on 12/15/14 at 4:59 pm
Posted on 12/15/14 at 4:59 pm
I will receive 20-25% of my salary for my bonus in February. My company pays it on a separate check. I have heard of other employees claiming "exempt" right before the bonuses are paid. Is this a good idea?
Posted on 12/15/14 at 5:02 pm to LSU6262
Income is income is income. You aren't going to pay a higher or lower percentage of taxes just because it is a bonus.
If your salary is $100,000 per year and you know you'll get 25,000 at the end of the year, adjust your withholdings accordingly.
To answer your question, it doesn't matter. There isn't a way to game the system that I know about.
If your salary is $100,000 per year and you know you'll get 25,000 at the end of the year, adjust your withholdings accordingly.
To answer your question, it doesn't matter. There isn't a way to game the system that I know about.
Posted on 12/15/14 at 6:13 pm to LSU6262
You pay it now or you pay it laterI would rather have a lower withholding all year long and crank it up at year end. Doing it this way makes little sense.
Posted on 12/15/14 at 6:55 pm to I Love Bama
quote:
it doesn't matter
Withholding is higher on a "bonus" thanks to Bill Clinton punishing the rich people. When you figure the taxes at the end of the year it will all be figured at yoy regular tax rate.If you do nothing you are making the gvt a tax free loan for over a year. I claim an extra exemption or 2 all year so that doesnt happen.
Posted on 12/15/14 at 8:51 pm to agdoctor
This is kind of what I've heard
Posted on 12/15/14 at 9:49 pm to LSU6262
Depends on the payroll software and settings.
Most tax withholdings get calculated based on the combination of the amount paid and the frequency.
If the payroll dept has set up $xxx paid 24 or 26 times a year, it applies certain withholding tables on an annualized basis.
If a once a year bonus is paid and its frequency calculation is is the same as your regular pay, the software will multiply the 1x bonus by the 24 or 26 pay periods and assume you make that rate for the rest of the year and deduct a shite ton of taxes at the highest rates.
In those cases, you want minimal deductions. Take your dependants up to 9 or something for that one payroll maybe.
Most tax withholdings get calculated based on the combination of the amount paid and the frequency.
If the payroll dept has set up $xxx paid 24 or 26 times a year, it applies certain withholding tables on an annualized basis.
If a once a year bonus is paid and its frequency calculation is is the same as your regular pay, the software will multiply the 1x bonus by the 24 or 26 pay periods and assume you make that rate for the rest of the year and deduct a shite ton of taxes at the highest rates.
In those cases, you want minimal deductions. Take your dependants up to 9 or something for that one payroll maybe.
This post was edited on 12/15/14 at 9:50 pm
Posted on 12/15/14 at 11:08 pm to I Love Bama
quote:
If your salary is $100,000 per year and you know you'll get 25,000 at the end of the year, adjust your withholdings accordingly.
Your company is suppose to do this. Basically, at $100,000, you're probably in the 25% bracket (unless you have a spouse making a lot of money) and 6% state. You're also looking at approx. 7.5% FICA, etc. So, they should withhold about 38.5% from any bonus.
Posted on 12/16/14 at 6:45 am to Bullfrog
Bullfrog is spot on. If this method is working for others in your company that's the reason why.
Posted on 12/16/14 at 8:02 am to TheHiddenFlask
quote:
You pay it now or you pay it laterI would rather have a lower withholding all year long and crank it up at year end. Doing it this way makes little sense.
Not necessarily true, they may treat it as his regular wage this time and every other, and would result in having too much withheld at year end. That's how my old employer was. If the OP isn't in the highest bracket already, he will be for the bonus pay period, and I doubt that they adjust other periods accordingly. Although you could be correct if you are interpreting what he said literally as he gets his salary as his bonu, which isn't really a bonus at all.
Like other posters have said, either up your exemptions or calc out your own withholding based on tax rate and tell payroll to with old that amount.
Posted on 12/16/14 at 7:04 pm to OceanMan
Interesting. I was assuming everyone not sophisticated enough to do this right used ADP.
That system is remarkably dumb. Can't imagine the software company will stay in business.
That system is remarkably dumb. Can't imagine the software company will stay in business.
Posted on 12/16/14 at 7:27 pm to MMauler
All of the payroll software I've seen will generate the appropriate withholding based on the information entered. If the employer provides the proper information indicating the payment is a bonus, then the payroll software will calculate withholding for a bonus payment, even if the bonus payment is made with a regular paycheck rather than as a separate check/payment.
Posted on 12/16/14 at 8:41 pm to Poodlebrain
Bonuses aren't taxed any differently than normal income
This post was edited on 12/16/14 at 8:42 pm
Posted on 12/16/14 at 9:52 pm to HurricaneDunc
quote:Bonuses aren't taxed differently, but they have special rules for withholding. See Chapter 7 - Supplemental Wages Circular E
Bonuses aren't taxed any differently than normal income
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