Taxes on Bonuses...Holy Crap!

• jmog

  Well, got my bonus check for last year today...I won't go into how much because that's not important (but it was nice)...however..
  
  Good Lord does the government like to hit bonuses HARD.
  
  In the end the government got nearly half of my money. They got 47% and out of the goodness of their hearts let me keep 53%.
  
  Come to think of it, I take that back, make it 48/52 because at the end of the year I'll owe the city I live in 1% of it (their city tax is 2%, place where I work is 1%, so I have to pay the difference).
• fish82

  

  Bonuses are evil. Don't you know that by now? You're lucky you got to keep any of it, you greedy bastard.
• jmog

  No kidding, I should call the IRS personally and thank them for letting me keep half .
• coach_bob1

  I remember when I was coaching, Columbus would pay your coaching pay as one lump sum that was added to your teaching paycheck. They would then tax the whole check as if it was bonus pay.
• jmog

  coach_bob1 wrote: I remember when I was coaching, Columbus would pay your coaching pay as one lump sum that was added to your teaching paycheck. They would then tax the whole check as if it was bonus pay.

  Well, luckily even though we got our regular pay today, they were two separate checks/deposits for this reason.
  
  My regular check had normal taxes in it and the bonus got raped.
• ptown_trojans_1

  

  Evil jmog. Never knew you were a greedy Wallstreet banker. Might as well call you Gordon Gekko. haha.
  
  That does blow though.
• derek bomar

  

  Pardon my ignorance, but at the end of the year isn't it a wash?
• jmog

  ptown_trojans_1 wrote: Evil jmog. Never knew you were a greedy Wallstreet banker. Might as well call you Gordon Gekko. haha.
  
  That does blow though.

  Yup, you better watch your wives and kids because I'm evil making millions off of innocent "main street" people.
• jmog

  derek bomar wrote: Pardon my ignorance, but at the end of the year isn't it a wash?

  Technically I will pay the same total % at the end of the year, yes.
  
  However, due to the bonus taxes done this way, I am basically giving the Feds a 9 month 0% interest loan instead of putting the money in a savings or IRA and gaining money on it.
  
  Or even, at worst paying off a CC and saving the interest over the next 9 months.
• majorspark

  

  jmog wrote:

  derek bomar wrote: Pardon my ignorance, but at the end of the year isn't it a wash?

  Technically I will pay the same total % at the end of the year, yes.
  
  However, due to the bonus taxes done this way, I am basically giving the Feds a 9 month 0% interest loan instead of putting the money in a savings or IRA and gaining money on it.
  
  Or even, at worst paying off a CC and saving the interest over the next 9 months.

  Don't give them bastards a free loan. Claim more dependents on your W2. They can rape your bonus check at the end of the year, but you kept more of your money in each paycheck.
• RedRider1

  

  We gotta do something about these fatcats.
  
  PS - congrats.
• jmog

  majorspark wrote:

  jmog wrote:

  derek bomar wrote: Pardon my ignorance, but at the end of the year isn't it a wash?

  Technically I will pay the same total % at the end of the year, yes.
  
  However, due to the bonus taxes done this way, I am basically giving the Feds a 9 month 0% interest loan instead of putting the money in a savings or IRA and gaining money on it.
  
  Or even, at worst paying off a CC and saving the interest over the next 9 months.

  Don't give them bastards a free loan. Claim more dependents on your W2. They can rape your bonus check at the end of the year, but you kept more of your money in each paycheck.

  I already claim like 12 or 13 dependents on my W2 with only 3 real kids and a wife for just this reason.
  
  However, the bonus checks are just hit with a "flat" fed tax usually and then you just "figure" it out at the end of the year. That's how I've seen it at most places I've worked.
• jmog

  PS-Guys, don't get the idea that its wall street CEO type bonuses...we are talking 20-25% of annual salary. I just don't want everyone thinking I just got a check for hundreds of thousands .
• HitsRus

  

  I can confirm the figure of 50%. Got a quarterly bonus and only got half of it in my paycheck.
  I am a firm believer that if everyone had to actually sit down and pay quarterly taxes and write a personal check for the amount, we would have a tax revolt so fast it would make Obama's head spin...oh wait, it does that already
  
  Taxes are extracted so painlessly...your employer being the unpaid tax collector. You never get your money you've earned so you get used to not missing it.
• derek bomar

  

  jmog wrote:

  derek bomar wrote: Pardon my ignorance, but at the end of the year isn't it a wash?

  Technically I will pay the same total % at the end of the year, yes.
  
  However, due to the bonus taxes done this way, I am basically giving the Feds a 9 month 0% interest loan instead of putting the money in a savings or IRA and gaining money on it.
  
  Or even, at worst paying off a CC and saving the interest over the next 9 months.

  Right, I understand TVM, I just thought you were trying to say that you were being taxed more than you were. It was slightly confusing.
• fan_from_texas

  HitsRus wrote: I can confirm the figure of 50%. Got a quarterly bonus and only got half of it in my paycheck.
  I am a firm believer that if everyone had to actually sit down and pay quarterly taxes and write a personal check for the amount, we would have a tax revolt so fast it would make Obama's head spin...oh wait, it does that already
  
  Taxes are extracted so painlessly...your employer being the unpaid tax collector. You never get your money you've earned so you get used to not missing it.

  I hear you. We are paid bonuses in March, and 50% of it disappears. It's frustrating because bonuses are a large part of our comp--I may get it back at the end of the year, but it sucks not to have it throughout the year.
• jmog

  fan_from_texas wrote:
  
  I hear you. We are paid bonuses in March, and 50% of it disappears. It's frustrating because bonuses are a large part of our comp--I may get it back at the end of the year, but it sucks not to have it throughout the year.

  Exactly.
  
  I can overcompensate on my W2 to not let the feds take an interest free loan throughout the year out of my paycheck (those that love huge tax returns just don't understand the math of it).
  
  However, you can't fix the "flat" tax on bonuses no matter what your W2 is set at.
  
  A little "math" to make the point.
  
  Lets say someone got a $20,000 bonus. The "flat" federal tax on a bonus would take roughly 30% of that (add in medicare/SS/state/local and you'll get to about 50%).
  
  So the feds take $6000 in income tax. Lets say at the end of the year they would get $4000 of that back. So, that's $4000 the feds got to keep all year for free.
  
  If said person had invested that $4000 they could have easily made ~$300 in an IRA or mutual fun in that time frame.
  
  Or, if said person paid off a $4000 credit card with that money that was on say 20% interest, they saved $800 in interest in that year (roughly).
  
  Again, there's a reason I claim a ton on my W2 and just put the "extra" money from claiming that much in a money market account, at least I'm getting interest on my money instead of lending it to the government at 0% interest.
  
  Again, you can not fix this situation to work "right" with bonus money.
• Manhattan Buckeye

  ^^^
  
  Indeed, it is tough to game the system, especially if your bonus fluctuates year over year. You don't want to over claim and end up owing a penalty. My wife gets paid out early March, with a 0-40%/salary bonus. It can be substantial but it isn't guaranteed. Our taxes are messed up anyway with all of the crap we have going on and my business that you can't just claim a lot of exemptions without a rational reason, so you end up with the payroll company (Ceridian or whoever) taking out the max withholding. I don't think it was quite 50% for her this year, but pretty close with maximum fed withholding, state withholding and FICA.
• fan_from_texas

  We attempted to "game" it last year by estimating as close as we could, and we came very, very close to getting hit with a penalty. We're being a little more conservative this year.
• jmog

  fan_from_texas wrote: We attempted to "game" it last year by estimating as close as we could, and we came very, very close to getting hit with a penalty. We're being a little more conservative this year.

  I'm usually a little more conservative, try to make it where I just get 0 back and pay 0 at tax time. I try to do this as my "overall" taxes break even.
  
  For instance, I know I'm going to owe my home town 1.25% at the end of the year regardless. So, I try to set state/federal up to get back just over 1.25% so I "break even".
  
  If anything is off, I try to be off on the refund side. I'd rather get a couple hundred bucks back than have to take the money out of my money market account or IRA.
• BoatShoes

  It would be interesting if you could make a case for the IRS to have to be required to compensate for the time value of money and pay interest for the money it with holds until it is refunded. But on the other hand, suppose the Feds withold too little as a down payment of tax and one ends up having to pay taxes by April 15th, should we understand it as an interest free loan from the feds all year and argue that taxpayers pay interest on this amount?
• Little Danny

  

  I always say if taxes were not deducted from your paycheck and Americans had to write a check to the govt to pay the tax bill, everyone (including the bleeding hearts) would be rioting in the streets.
• LJ

  

  BoatShoes wrote: It would be interesting if you could make a case for the IRS to have to be required to compensate for the time value of money and pay interest for the money it with holds until it is refunded. But on the other hand, suppose the Feds withold too little as a down payment of tax and one ends up having to pay taxes by April 15th, should we understand it as an interest free loan from the feds all year and argue that taxpayers pay interest on this amount?

  I think it should be set up the same way as the estimated payments. If the IRS has more than 110% of your taxes due, they should owe you interest, just as if you owe more than 10% you have to pay a penalty.
• LJ

  

  Little Danny wrote: I always say if taxes were not deducted from your paycheck and Americans had to write a check to the govt to pay the tax bill, everyone (including the bleeding hearts) would be rioting in the streets.

  I do this every 3 months, so.... false
• majorspark

  

  BoatShoes wrote: It would be interesting if you could make a case for the IRS to have to be required to compensate for the time value of money and pay interest for the money it with holds until it is refunded. But on the other hand, suppose the Feds withold too little as a down payment of tax and one ends up having to pay taxes by April 15th, should we understand it as an interest free loan from the feds all year and argue that taxpayers pay interest on this amount?

  No, because the due date for payment of any tax owed per tax year is April 15th. As long as you pay by the due date an individual has met his obligations to the feds. By having federal tax withheld, you are allowing the federal government to save your money in their account for future payment of any tax owed and they pay you no interest.
  
  I prefer to invest or save mine. I don't try to break even. I give them bastards as little as possible until it is due. On April 15th (not a day earlier) I write the government a sizable check with profanity laced words crossing my lips with each pen stroke.