bonus tax question

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bonus tax question

Post by Jmkimmd » Fri Oct 06, 2017 9:33 am

I need your advice regarding this. My wife and I are planning on getting a cpa but won't have enough time to get one before making a decision on this.

We will be getting a sizable bonus from work. My tax bracket is the highest at 39%. I read that there is a thing called "supplemental income" which is the bonus which can be taxed at 25% if its under 1 million dollars which it is. Does anyone know more about this? If this is the case, how do i tell my employer to issue the bonus? In a separate check. They want to put it in the next payroll, which if this happens will be part of regular salary so i would be subject to the standard marginal tax rate?

thank you for any insights.

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Re: bonus tax question

Post by riverguy » Fri Oct 06, 2017 9:36 am

Withholding is at 25% but you are going to pay standard income tax rates on it come tax return time.

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Re: bonus tax question

Post by Hayden » Fri Oct 06, 2017 9:39 am

I think you are confusing withholding from taxes. Your bonus is income; it will be taxed as income when you submit your tax return at the end of the year.

What you are referring to is the withholding rate. If you get payroll to issue the bonus with 25% withholding, you'll just owe the remainder when you do your taxes.

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Re: bonus tax question

Post by Pajamas » Fri Oct 06, 2017 9:41 am

Does your employer give you the choice? My experience has been that they do not but follow a set policy.

Employers can treat your bonus as regular income and calculate withholding on the whole amount of your bonus plus regular salary, which means they withhold taxes as if you made that much every pay period, which may mean they hold out too much.

They also can choose the alternative of withholding 25% of the bonus per IRS regulations.

Seems like 25% would not be enough to cover the taxes you would owe if you are in the 39% bracket.

Your CPA should be able to tell you if you need to make an estimated tax payment.

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Re: bonus tax question

Post by Katietsu » Fri Oct 06, 2017 9:43 am

The only thing I am aware does not really refer to taxation but withholding.

There are two ways an employer can calculate withholding on supplemental income/a bonus. They can add it to regular wages and calculate using the normal withholding tables. Or they can withhold on supplemental wages at a flat rate of 25%. However, this just affects withholding. If you withhold at 25% and this extra income falls into the 33% marginal tax bracket, you will have to pay the difference when you file next spring.

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Re: bonus tax question

Post by Globalviewer58 » Fri Oct 06, 2017 9:47 am

You can also get a free estimate of the tax impact by using taxcaster software. Load last year's detail from your return plus the expected bonus to see how much more you will owe. This is a 10 minute exercise.

If you don't have enough withheld from the bonus then you'll need to make a quarterly estimated payment to make up for the difference. Penalty may be assessed if you wait until you file your 2017 return and find that you have not paid enough tax.

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Re: bonus tax question

Post by mhc » Fri Oct 06, 2017 10:16 am

Before you worry about making quarterly estimated tax payments, look into the safe harbor rules. If your income is drastically higher this year because of the bonus, you do not need to be concerned about under withholding penalties. You will have to pay the taxes at some point. Later is better than sooner.

The taxes will be big. 39% + state tax + phase outs.

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Re: bonus tax question

Post by sixty40 » Fri Oct 06, 2017 6:53 pm

We just issued bonuses to the officers in our company. There are 3 categories that the employee can control which are; 401k contribution, federal tax, and state tax(if applicable). We ask each employee how much they want deducted in these categories, they can choose Standard for the taxes. You cannot control FICA, Medicare, and SDI. I would imagine your employer would allow you to deduct what you like in taxes.

Bonuses basically just counts as regular income, nothing special, so you it will be taxed as regular income.

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