bonuses and taxes

At the end of the year it is taxed like any other income. When you are paid your bonus it is typical to withhold tax at your highest tax bracket since it is in addition to your normal income.

My federal withholding on my bonus has always been much higher than my federal withholding for my monthly gross salary, how are they not taxed differently?

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My federal withholding on my bonus has always been much higher than my federal withholding for my monthly gross salary, how are they not taxed differently?

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guess it all depends on your companies payroll software

But, each check is taxed like it is a recurring check forecast for the entire year to derive the tax rate.

so if you get paid weekly then your weekly check is taxed as if you will receive 52 checks at that rate to derive your weekly tax rate. so a large bonus check will be taxed at the highest rate.

This is the reason i have seen guys in the field get 1 or two hours of OT and actually bring home less then a 40 hr check because it bumps them up into a higher tax bracket.

But when filing your taxes at the end of the year, that bonus check gets averaged out with all your weekly checks since you are only looking at your net income at that point.

In December i call accounting and have them take a fixed % out of my checks for state and federal instead of using number of deductions. That way my bonus check is not hit so hard....

It will all work out to the same thing when you file your taxes. If your Bonus gets hit hard when you receive it, you will benefit when you file your taxes.

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My federal withholding on my bonus has always been much higher than my federal withholding for my monthly gross salary, how are they not taxed differently?

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Because you aren't getting taxed every paycheck. You get taxed on April 15. The withholdings are usually just based on a projection of what your gross income (and ultimately what taxes you're going to owe) is going to be, based on things like the amount of the check and assuming that forward until the end of the year. Because of how the withholding is calculated, what happens is that large one-off checks often end up skewing high and getting a higher withholding percentage than usual payroll checks.

However, the actual tax you owe isn't known until you calculate and file your tax return. Once you have calculated the tax you owe the government, all of the withholdings that you made over the year are subtracted from the tax due. If the withholdings were too high and you had more money withheld and sent to the government than you actually owed, you get a refund check. Without interest, of course.

That's the general idea.

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did that work?

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My old job, I would get one EOY bonus and I knew the amount before hand...I'd adjust my withholding for that one check to help offset the extra withheld.

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did that work?

40% of my income is in bonuses and b.c of that I always get huge refunds. This year I am looking at close to 7k in refund and that is with a large chunk of investment income that wasn't taxed.

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I imagine it would depend on the company and the payroll software they are using.

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I would prefer to not give the gov't a free loan.

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Change your withholding's.

No

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My federal withholding on my bonus has always been much higher than my federal withholding for my monthly gross salary, how are they not taxed differently?

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It's the witholding software - it basically thinks you now will have that as your month salary. You get it back on your returns.

You can change the the pay frequency from bi-weekly to monthly so that the accounting software withholds federal and state taxes on the bonus as if it were your monthly salary. It causes less taxes to be withheld.