Taxes on Bonuses...Holy Crap!

• Ghmothwdwhso

  BoatShoes wrote:

  Ghmothwdwhso wrote: After all, it was your money. Great post. So many people don't think that way.

  Well technically no, if he's going to have to pay it to the government on April 15th he has assigned any property claim to that money beyond that date to the Treasury through his representative in the U.S. Congress and his State's Senators. He has a present possessory interest and the Treasury has a future interest. I'm pretty sure his point that he should not owe the treasury interest though, is sound.

  Well technically, It was his money up to 4/15.
• I Wear Pants

  jmog wrote: 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 .

  That's a pretty damned large bonus.
• majorspark

  

  Ghmothwdwhso wrote:

  BoatShoes wrote:

  Ghmothwdwhso wrote: After all, it was your money. Great post. So many people don't think that way.

  Well technically no, if he's going to have to pay it to the government on April 15th he has assigned any property claim to that money beyond that date to the Treasury through his representative in the U.S. Congress and his State's Senators. He has a present possessory interest and the Treasury has a future interest. I'm pretty sure his point that he should not owe the treasury interest though, is sound.

  Well technically, It was his money up to 4/15.

  Yes you are correct and so is Boat. It is my property until the date set by my representation in the federal government. At that point it is legally theirs. Until that time I have the right to use that money as I please. If I use it in an unwise manner and fail to meet my obligation, I will pay a hefty penalty as well as interest for forcing a loan on the federal government.
  
  My point being the federal government should not expect to force a loan on me and I won't expect it of them. On the date assigned I will turn my property over to them. For now my fight will be lobbying my representatives in the federal government to bring the federal government into fiscal sanity. Just as I am obligated to do. Personally, and to my county, my state, and to the feds.
• Sonofanump

  Footwedge wrote:

  Sonofanump wrote: I wish election day was April 16th. I think it might make a small difference on not electing tax and spend politicians.

  What difference would that make? Are you inferering that somehow electing a different party would change anything?

  Yes I am, I stated that very clearly, but neither of the two major parties would qualify to make a productive change. They are both pathetic, it's just one is more pathetic than the other.
• Footwedge

  Sonofanump wrote:

  Footwedge wrote:

  Sonofanump wrote: I wish election day was April 16th. I think it might make a small difference on not electing tax and spend politicians.

  What difference would that make? Are you inferering that somehow electing a different party would change anything?

  Yes I am, I stated that very clearly, but neither of the two major parties would qualify to make a productive change. They are both pathetic, it's just one is more pathetic than the other.

  So the "tax and spend" party is worse than the "borrow and really spend" party?
  
  Like George Carlin so eloquently put it..."don't blame me...I don't fuggin vote".
• jmog

  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?

  Actually, if you are withholding hardly any and you owe a decent amount, you actually pay penalties/fines for not withholding enough.
  
  So yes, you do pay "interest" if you end up owing a lot at the end of the year.
• jmog

  Footwedge wrote:
  
  This makes no sense at all. None. I understand that the bonus tax pay period is taxed as if you made that type of money every month. But the maximum tax bracket is around 37%.
  
  What constitutes the other 9%? Even if you add in the payroll tax (7.15%), you still don't hit 47%.
  
  And you legally are claiming 12 deductions on your withholding allowances? How in the hell do you get away with that?
  
  Something smells like rotten fish on this one.

  Oh good Lord.
  
  SS-6.2%
  Medicare-1.5%
  State-3.5%
  Local-2.25%
  Fed-~35%
  
  Add them together you get about 48%.
  
  
  Also, claiming 12 on your W4 is not illegal and not a problem at all. Matter of fact if you go to the IRS.gov website and go to the link on what you should claim on your W4, they will "help" you claim the right amount to owe/get back $0. For me, that was around 14, I went conservative at 12 .
• BoatShoes

  jmog wrote:

  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?

  Actually, if you are withholding hardly any and you owe a decent amount, you actually pay penalties/fines for not withholding enough.
  
  So yes, you do pay "interest" if you end up owing a lot at the end of the year.

  Yes I suppose you could indeed characterize it as interest/compensation for the time value of money but it seems like it's more punitive in nature rather than compensatory...either way, regardless of the form I suppose the end result is the same.
• Sykotyk

  

  I work for myself, and pay quarterly. I don't mind it.
  
  As for bonuses, generally, payroll withholds taxes at the tax bracket based on what bracket you'd be in if you earned that same amount of money every week for the rest of the year. So, a $10k bonus one week would be the equivalent of a $520,000/year income. Hence, the highest tax bracket.
• assumption

  jmog wrote: 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).

  Don't want to go into how much???? Last I heard all earned income was taxable. That % breakdown tells us you make big bucks. Most know the tax on your bonus will be factored in at the end of the year. Poooor boy!
• jmog

  assumption wrote:
  Don't want to go into how much???? Last I heard all earned income was taxable. That % breakdown tells us you make big bucks. Most know the tax on your bonus will be factored in at the end of the year. Poooor boy!

  Mr. assumption makes a very bad assumption.
  
  You don't understand how bonuses are taxed if you think its taxed like my normal pay and therefore is indicative of my actual tax bracket.
• fan_from_texas

  assumption wrote: Don't want to go into how much???? Last I heard all earned income was taxable. That % breakdown tells us you make big bucks. Most know the tax on your bonus will be factored in at the end of the year. Poooor boy!

  That's a silly assumption. As noted above, some workplaces (most? all? certainly mine) tax the bonus as though you were earning income at that rate over the entire year. For positions that are bonus driven (such as mine, where bonus can make up a huge chunk of our total comp each year), that means you get screwed on taxes. Our FY ends 1/31, so we get bonuses in early March. That means that even if we're overtaxed on the bonuses, we can't get that money back until more than a year later when we next file taxes. It's annoying.
• queencitybuckeye

  fan_from_texas wrote:
  That's a silly assumption.

  I'm gonna have to go ahead and say "no" to this kind of attack- LJ
• queencitybuckeye

  Not an attack, a simple statement of fact. Certainly no more of an attack than the post that prompted it.
• assumption

  fan_from_texas wrote:

  assumption wrote: Don't want to go into how much???? Last I heard all earned income was taxable. That % breakdown tells us you make big bucks. Most know the tax on your bonus will be factored in at the end of the year. Poooor boy!

  That's a silly assumption. As noted above, some workplaces (most? all? certainly mine) tax the bonus as though you were earning income at that rate over the entire year. For positions that are bonus driven (such as mine, where bonus can make up a huge chunk of our total comp each year), that means you get screwed on taxes. Our FY ends 1/31, so we get bonuses in early March. That means that even if we're overtaxed on the bonuses, we can't get that money back until more than a year later when we next file taxes. It's annoying.

  Thanks for confirming my statement. Only difference is WHEN.
• fan_from_texas

  assumption wrote:

  fan_from_texas wrote:

  assumption wrote: Don't want to go into how much???? Last I heard all earned income was taxable. That % breakdown tells us you make big bucks. Most know the tax on your bonus will be factored in at the end of the year. Poooor boy!

  That's a silly assumption. As noted above, some workplaces (most? all? certainly mine) tax the bonus as though you were earning income at that rate over the entire year. For positions that are bonus driven (such as mine, where bonus can make up a huge chunk of our total comp each year), that means you get screwed on taxes. Our FY ends 1/31, so we get bonuses in early March. That means that even if we're overtaxed on the bonuses, we can't get that money back until more than a year later when we next file taxes. It's annoying.

  Thanks for confirming my statement. Only difference is WHEN.

  Your statement implied that the witholding of a significant portion of a bonus check indicates that someone is earning "big bucks." That is clearly and demonstrably false. Many bonus-driven fields will have their bonuses taxed at significantly higher rates than their overall comp level would otherwise support.
  
  The practical difference between these--which wasn't your statement--is that the money is given as a tax-free loan to the feds. For people who rely on the bonus as a significant part of their comp, this can be quite a burden. It admittedly doesn't affect many people, but it is a big issue for some.
  
  E.g., say you earned an income at the rate of $30k throughout the year, with a bonus ranging from $20k-40k, depending on performance. That bonus would be paid in March. If the bonus were taxed like the rest of your income, you would likely pay only nominal taxes on the bonus, depending on various credits/deductions. But many (most? some?) workplaces would take about half of the bonus from you and force you to wait a year to get the rest. If you hit the $40k bonus level, that's $20k that you are entitled to that you can't touch for an entire year. While you may act like waiting a year for it isn't a big deal, to most people in that situation who work in bonus-driven fields, waiting that long to get something everyone agrees is rightfully yours from a tax perspective can be very frustrating and cause hardship.
  
  Contrary to your statement above, simply receiving a big chunk of one's comp in bonus doesn't necessarily indicate that the person is earning "big bucks."
• jmog

  assumption wrote:

  fan_from_texas wrote:

  assumption wrote: Don't want to go into how much???? Last I heard all earned income was taxable. That % breakdown tells us you make big bucks. Most know the tax on your bonus will be factored in at the end of the year. Poooor boy!

  That's a silly assumption. As noted above, some workplaces (most? all? certainly mine) tax the bonus as though you were earning income at that rate over the entire year. For positions that are bonus driven (such as mine, where bonus can make up a huge chunk of our total comp each year), that means you get screwed on taxes. Our FY ends 1/31, so we get bonuses in early March. That means that even if we're overtaxed on the bonuses, we can't get that money back until more than a year later when we next file taxes. It's annoying.

  Thanks for confirming my statement. Only difference is WHEN.

  No, you just don't understand how the tax system works if you think he confirmed your statement.
• QuakerOats

  Bonuses are considered 'supplemental wages'. The federal withholding requirement on supplement wages is 25%; the Ohio withholding is 3.5%, and of course you would have FICA of 7.65%, plus any applicable local tax;; thus it is fairly easy to have 40% of the bonus check withheld, which obviously is not pretty. In addition any 401k deferrals would also have to be withheld at whatever rate you elected.
  
  We continue to tax productivity, labor, investment, savings, and good ideas. We do not tax laziness, deadbeat-ism, television viewing hours, or food stamps. Over time, you get less of what you tax, and more of what you don't tax.
• Manhattan Buckeye

  QuakerOats wrote: Bonuses are considered 'supplemental wages'. The federal withholding requirement on supplement wages is 25%; the Ohio withholding is 3.5%, and of course you would have FICA of 7.65%, plus any applicable local tax;; thus it is fairly easy to have 40% of the bonus check withheld, which obviously is not pretty. In addition any 401k deferrals would also have to be withheld at whatever rate you elected.
  

  This is correct to my knowledge, however also to my knowledge your employer needs to opt to have the bonus classified as a supplemental wage and the nature of the bonus needs to meet certain criteria. Having worked at a place similar to where FFT works, in my experience many employers do not pursue this option - probably the best reason is they don't want to incur the additional administrative costs of this option for an incrementally better withholding for their employees. Then again, maybe there is another reason.
• I Wear Pants

  QuakerOats wrote: Bonuses are considered 'supplemental wages'. The federal withholding requirement on supplement wages is 25%; the Ohio withholding is 3.5%, and of course you would have FICA of 7.65%, plus any applicable local tax;; thus it is fairly easy to have 40% of the bonus check withheld, which obviously is not pretty. In addition any 401k deferrals would also have to be withheld at whatever rate you elected.
  
  We continue to tax productivity, labor, investment, savings, and good ideas. We do not tax laziness, deadbeat-ism, television viewing hours, or food stamps. Over time, you get less of what you tax, and more of what you don't tax.

  So you want to tax things that aren't taxable?
• IggyPride00

  

  We continue to tax productivity, labor, investment, savings, and good ideas.

  Tax bills in 2009 at lowest level since 1950
  http://www.usatoday.com/money/perfi/taxes/2010-05-10-taxes_N.htm
  
  There seems to be a disconnect between your rhetoric and reality.
• Manhattan Buckeye

  ^^^
  
  Well, it has more to do with the absolute godawful increase in un/underemployment in the last year. When you lose X million jobs plus the number of people that have accepted lower wages, you lose the income tax revenue that goes with it. Is the rationale that the numbers are a result of us being undertaxed, or is the rationale that the numbers are a result of the labor market blowing chunks right now? I'd go with the latter, unless you think raising taxes is going to increase jobs somehow. We could increase tax rates by 5% across the board, as long as people are out of work and have no income, tax receipts will remain low. Darn near half of American households pay no income taxes as it is (the article didn't include SS taxes), meaning people with 0% or negative income tax liability is going to bring the number down.
• IggyPride00

  

  the article didn't include SS taxes

  Social Security taxes are apparently considered "insurance payments" by the government (which I guess theoretically makes sense) just to clarify for anyone wondering why they aren't calculated in the tax bill equation.
• queencitybuckeye

  IggyPride00 wrote:

  the article didn't include SS taxes

  Social Security taxes are apparently considered "insurance payments" by the government (which I guess theoretically makes sense) just to clarify for anyone wondering why they aren't calculated in the tax bill equation.

  It make sense as is insures that we all pay in a hefty percentage of our income for a sub-rate of inflation return.
• jmog

  queencitybuckeye wrote:

  IggyPride00 wrote:

  the article didn't include SS taxes

  Social Security taxes are apparently considered "insurance payments" by the government (which I guess theoretically makes sense) just to clarify for anyone wondering why they aren't calculated in the tax bill equation.

  It make sense at is insures that we all pay in a hefty percentage of our income for a sub-rate of inflation return.

  Exactly.
  
  The best idea the government ever had with regards to SS was to privatize it and let you put it in the market like a 401k or IRA.
  
  Unfortunately there are too many stupid people in Congress that shot this idea down.