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Posted on 3/24/15 at 9:02 am to tiger91
quote:
Why are bonuses/overtime taxed at a higher rate? I hear the nurses talking about this and I guess as it never has affected me I just don't ever think about it to "get it".
They don't " get it" either. I had to explain this to my sister, who works in a hospital, because she was trying to limit her overtime to save on taxes. She thought if she went to the next tax bracket, she was gonna get everything taxed at the rate.
Posted on 3/24/15 at 9:07 am to TIGRLEE
quote:
I got taxed 41% on my latest bonus.
You do know you don't have to have your W-2 deductions setup right?
I have my payroll department withhold a fixed amount per check for state and federal, and when December comes i tell them to withhold a fixed percentage from my checks.
So instead of getting that one check taxed at the highest rate, i get taxes at 5% federal and 2.5% state..
since my pay in 2013 was the same as 2014, i modeled my total taxes paid in 2014 after my total in 2013, i get back $85 federal and $7 state this year, so no interest free loan given to the gov...
Posted on 3/24/15 at 9:10 am to tigeraddict
5% federal?
That's it?
That's it?
Posted on 3/24/15 at 9:14 am to igoringa
You don't "get it back". It is taxed at your highest tax bracket because the tax withholdings on your regular salary do not take into account your bonus income. Your effective tax rate is the same on every dollar you earn, so it is correct that your withholding on bonuses is too high, but is offset by withholdings on your salary that are too low.
This isn't "shitty accounting software". It is the most reasonable way to do it. Most systems allow for workarounds, as has been noted, but it would require you knowing with good confidence what your total comp number will be (in addition to your total deductions for the year) or some dynamic withholding asjustments in the 4th quarter. Most people are incapable of both of those.
To the OP: be glad you don't live in Manhattan. The top marginal rates there are over 50%
This isn't "shitty accounting software". It is the most reasonable way to do it. Most systems allow for workarounds, as has been noted, but it would require you knowing with good confidence what your total comp number will be (in addition to your total deductions for the year) or some dynamic withholding asjustments in the 4th quarter. Most people are incapable of both of those.
To the OP: be glad you don't live in Manhattan. The top marginal rates there are over 50%
Posted on 3/24/15 at 9:26 am to TIGRLEE
Sux for you.
Posted on 3/24/15 at 9:31 am to TheHiddenFlask
The software should be able to weight the amount of the bonus into a higher tax bracket but not as high as it usually does
It should look at standard paychecks to determine total annual income and then adjust the bonus withholding to make up the difference
It seems like the software just takes the easiest route
It should look at standard paychecks to determine total annual income and then adjust the bonus withholding to make up the difference
It seems like the software just takes the easiest route
Posted on 3/24/15 at 9:53 am to TIGRLEE
My wife's bonus last month was taxed 40%. She put 10% of it in her 401K in hopes of lowering the tax on it which didn't really make much of a difference.
Posted on 3/24/15 at 10:04 am to NoSaint
Is there something special that needs to be done to get it back or is it already part of the W2?
Posted on 3/24/15 at 10:04 am to NoSaint
Is there something special that needs to be done to get it back or is it already part of the W2?
Posted on 3/24/15 at 10:12 am to CHiPs25
Nothing special you have to do
Your tax return mainly just looks at total income and tax paid
Doesn't matter really how much was made one month to the next
It's all on your w2 simplified
Your tax return mainly just looks at total income and tax paid
Doesn't matter really how much was made one month to the next
It's all on your w2 simplified
Posted on 3/24/15 at 10:47 am to TIGRLEE
No you didn't
Posted on 3/24/15 at 11:04 am to southernelite
quote:
They don't " get it" either. I had to explain this to my sister, who works in a hospital, because she was trying to limit her overtime to save on taxes. She thought if she went to the next tax bracket, she was gonna get everything taxed at the rate.
You would be shocked how many times I have to tell people it is always better to make more money. 
Posted on 3/24/15 at 12:29 pm to lsupride87
When completing your withholdings, if you're single can't you still claim dependents to lessen the taxes withheld? Our son does grad assistant work and got a refund of about $1000 ... I was like man, you better go adjust the withholdings -- you're giving the gubment a big fat loan. He said when he completed the paperwork "the lady" just told him to put single and none. We still claimed him in 2014.
Posted on 3/24/15 at 12:50 pm to southernelite
quote:
They don't " get it" either. I had to explain this to my sister, who works in a hospital, because she was trying to limit her overtime to save on taxes. She thought if she went to the next tax bracket, she was gonna get everything taxed at the rate.
Major
And seriously, how many of these threads must we have???
Posted on 3/24/15 at 1:14 pm to tiger91
quote:
When completing your withholdings, if you're single can't you still claim dependents to lessen the taxes withheld? Our son does grad assistant work and got a refund of about $1000 ... I was like man, you better go adjust the withholdings -- you're giving the gubment a big fat loan. He said when he completed the paperwork "the lady" just told him to put single and none. We still claimed him in 2014.
Yes. I just finished my 2014 taxes and am in the process of adjusting my withholdings. I'm currently single with 1 federal exemption claimed. I'm expecting a $2,200 return this year, almost entirely from rental loss (first full year with the rental adjustment).
I just added a second federal exemption to lower the expected difference, but I'm not certain this will be enough to compensate. I receive my first paycheck including the adjustment next week and will update with the result.
Posted on 3/24/15 at 1:56 pm to tiger91
quote:
When completing your withholdings, if you're single can't you still claim dependents to lessen the taxes withheld?
you can put anything you want....even exempt
quote:
I was like man, you better go adjust the withholdings -- you're giving the gubment a big fat loan.
I wouldn't sweat $1,000 refund, at today's interest rate he's out $10
Posted on 3/24/15 at 4:05 pm to yellowfin
Yes, but he sure could have used that money for living expenses. An extra $100 a month for a grad student is a chunk of change ... even if he does spend it at the bar. lol
Can you claim married even if you're single?
Can you claim married even if you're single?
This post was edited on 3/24/15 at 4:06 pm
Posted on 3/24/15 at 4:45 pm to TIGRLEE
bonuses are usually taxed at the maximum rate for your projected income, it all evens out when you do your annual return
This post was edited on 3/24/15 at 4:47 pm
Posted on 3/24/15 at 5:11 pm to TheHiddenFlask
quote:
You don't "get it back".
Yes you do. Unless his effective rate is 41% then my statement "You will get a lot of that back - its effective rate at the end of the day wont be close to the 41% they took out (even if you are an OT baller)" is completely correct. And it is completely correct based off the exact statement you make:
quote:
Your effective tax rate is the same on every dollar you earn, so it is correct that your withholding on bonuses is too high, but is offset by withholdings on your salary that are too low.
Thus it will be the effective rate. The bonus was taxed at higher than his effective rate will ultimately be in all likelihood thus he will be getting a portion of that 41% back (Delta between 41% and his effective rate). Does he have other transactions that may also differ from effective? Of course. The point was he doesn't get taxed on this money at the end of the day at 41%. Thus of the 41% taken he gets some 'back'.
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