Tax withholding on bonuses

[icedtea]

I've read that the IRS withholds a higher percentage of bonuses than regular income, since the bonuses are treated as supplemental. I also read that in the end it all evens out since any withholdings are taken into account when taxes are calculated for the fiscal year. In other words, ultimately you'd keep the same amount of a 2k regular paycheck as a 2k bonus check, you'd just get more of it upfront in the regular paycheck. Is that correct? Someone I work with was arguing that you ultimately get less of a bonus than a regular paycheck.

I'm expecting around 10k in a bonus in March 2014. So does that mean that I'll actually get a portion of the bonus that March and, when it comes time to file my taxes for FY2014 in early 2015, I'd get back a greater amount in my refund (assuming I'm getting a refund) than if I never got the bonus?

Iced Tea

[LadyGeek]

This thread is now in the Personal Finance (Not Investing) forum (taxes).

[livesoft]

You can submit a new W-4 any time you want to change the withholding from your paychecks, so your bonus tax talk is just that talk. If you find that too much tax is withheld from your bonus simply reduce the tax withheld from your paycheck. You can even do this ahead of time before you receive the bonus.

Anyways, I suppose that unless you work for the IRS, the IRS does not withhold any taxes from your paycheck. Your employer withholds the taxes.

My spouse got a "Christmas" bonus in 2012 and no extra taxes were withheld at all.

[MN Finance]

In the past I usually received half my pay from regular checks and the other half in a one time bonus. I would elect the minimum possible withholding and my paychecks reflected such, but my annual payments were always at 25 or 28% since that's the marginal rate at that point. I don't know the code, but I'm sure there's some requirement in place to make sure one time payments don't result in under withholding.

Yes, you're obviously correct that it's not taxed differently, it's just withheld at a higher rate.

[Userdc]

You can submit a new W-4 any time you want to change the withholding from your paychecks, so your bonus tax talk is just that talk. If you find that too much tax is withheld from your bonus simply reduce the tax withheld from your paycheck. You can even do this ahead of time before you receive the bonus.

Anyways, I suppose that unless you work for the IRS, the IRS does not withhold any taxes from your paycheck. Your employer withholds the taxes.

My spouse got a "Christmas" bonus in 2012 and no extra taxes were withheld at all.

This isn't always true. It depends on whether your employer opts to treat it like a regular paycheck or supplemental income for withholding purposes. I know that my employer treats it as supplemental, so they withhold a flat 25% for federal taxes from bonus income, regardless of what your W4 says. I have no idea why an employer chooses one or the other or whether there are any proscriptions about which they have to do.

Of course withholding is just withholding and it has no impact on the actual taxes you owe. If you find they withhold too much from your bonus, you can still change your W4 to get that money back on your regular paychecks, or just wait for a refund next year.

[Random Poster]

As I recall, IRS rules mandate 25% withholding for bonuses, unless the bonus is over $1M, in which case the withholding is 35%. You can have a higher percentage withheld if you wish (or, in my case, if the tax accountants tell my employer to do so).

[scrabbler1]

From 2005-2008, the last 4 years I had bonuses, I had 25% federal tax withheld from it. It did not matter how many W-4 exemptions I had filed. It did not matter if I ended up in the 25% bracket or a lower one (which happened in 2008).

[Grt2bOutdoors]

My employer withholds a flat 25% in federal tax when payments other than normal payroll are processed. Things like awards and bonuses. Merit increases are part of payroll so that withholding is what ever your selected allowance schedule shows.

[BL]

Disregarding when or how much the withholding is, your tax for the year is pretty much based on your income less any adjustments and certain credits and exemptions.

You are not paying tax on the amounts you put into 401ks, etc. (You will later when you spend it!) Also you are not paying tax on certain other withholdings such as flex (not even social security!), so all of these are subtracted from your W-2 taxable income. You may or may not be putting part of your bonus into any of these vehicles which reduce your regular taxable income.

Withholding and/or refunds are just noise; they can be adjusted to some extent by changing your W-4 within allowable range. More withholding = greater refund, assuming you withheld more than you owe.