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Posted: 1/28/2002 10:19:36 AM EDT
Why do we have to pay damn near 50 percent tax on a bonus?
Link Posted: 1/28/2002 10:24:25 AM EDT
The gubment wants to be sure to get their share. So, they tax you heavily on bonuses. Doesn't matter, your bonus is actually considered normal income, so it rolls up with regular income for tax purposes. You will get some of those taxes back in your return.
Link Posted: 1/28/2002 10:25:28 AM EDT
fer crying out loud.
Link Posted: 1/28/2002 10:30:24 AM EDT
[Last Edit: 1/28/2002 10:32:21 AM EDT by Chairborne_Ranger]
Please explain BONUS tax please
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This tax applies when someone uses the word "please" more than once in a sentence. The second "please" is considered a bonus word and is taxed accordingly . . . (Edited to note that I crack myself up . . . [;)]
Link Posted: 1/28/2002 11:08:48 AM EDT
Link Posted: 1/28/2002 11:10:05 AM EDT
I just change my W-4 to "EXEMPT" the week prior to recieving the bonus and I get the entire check less the 1% union dues! :):)
Link Posted: 1/28/2002 12:04:35 PM EDT
I'd guess it is because of the possibility of the bonus/overtime bumping you up into the next tax bracket. The % that is taken out of your normal paycheck is based on your base salary, anything in addition to that base has the possibility of bumping you into the next bracket, and so having to pay an increased amount vs. your entire years earnings that was not previously accounted for. I'd say they tax the hell out of bonuses so that even if this does happen, the "extra" money they take out acts as a bit of a buffer. You'll still get any overpaid taxes back in your return. Rocko
Link Posted: 1/28/2002 12:11:08 PM EDT
[Last Edit: 1/28/2002 12:25:05 PM EDT by Houston]
Originally Posted By FlagWaver: Why do we have to pay damn near 50 percent tax on a bonus?
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Is your bonus in a seperate check, or combined with a normal paycheck. If it's combined with a normal paycheck, it's probably bumping you into the 38% tax bracket. Couple that with social security taxes and you're close to 50%. If your bonus is on a seperate check, the gov't allows it to be taxed at a flat 28% (plus the SS).
Link Posted: 1/28/2002 12:12:18 PM EDT
I regularly get bonuses and they all have a federal income tax rate of 28%. Earlier in 2001 before the market completely tanked I had over $2000 in federal income tax taken out of [b]one[/b] biweekly check. I'm getting most of it back in my return, but it would have been nice to have been able to blow it almost a year ago.
Link Posted: 1/28/2002 12:17:48 PM EDT
I'm a CPA. The 50% tax is due to the withholding tables. Assume you get paid normally $1,000 a week. The tables make teh assumption you make $52K per year, and withhold an amount to approximate your tax on that amount. Now assume you get regular pay of a thousand, and bonus of a thousand - $2K total. The withholding tables assume you make $104K per year, and your withholding goes WAY up. The answer is in getting your employer to do a SEPARATE check run for teh bonus check. Then the withholding tables won't eat you alive. That will be $500, please. I'll bill you. [:D]
Link Posted: 1/28/2002 12:20:45 PM EDT
Oh yeah, I remember those tax rates! A couple of years I ago I was in sales. One of my monthly commission checks was over $29K before taxes. By the time they got done with taxes, 401K, Social Security etc., I got less than $12K.
Link Posted: 1/28/2002 3:54:49 PM EDT
highest marginal rate is what, 49.6%? its seems as though I heard bonuses were taxed as "unearned income," and thus taxed at the highest marginal rate. like if you won the lottery.
Link Posted: 1/28/2002 4:02:17 PM EDT
For winners in the Texas lottery the winnings are federally taxed at 40%. At least that is what I was taxed a few years ago, and no I didn't win the big pick 6 Lotto. At work we have a long list of how certain bonuses are federally taxed and the highest bracket is 28% for all conventional bonuses including certain allowances. I'm sure there are other types that are taxed at a higher rate, but none that I am personally aware of. I know that after social security and all of the other junk taken out it comes to roughly 35%. I wish I made enough at work to be in the 40% bracket, though then I would just have something else to bitch about [:)]
Link Posted: 1/28/2002 4:18:12 PM EDT
[Last Edit: 1/28/2002 4:19:40 PM EDT by FMJunkie]
The highest federal rate *was* 39.6. It is now 39.4 I think or something close to that. Anyway, if your bonus is paid in a separate check as "incentive compensation" then you are taxed at least a flat federal amount of 28%. (You can specify whatever witholding rate you want above 28% if you so choose) After you add in all the other taxes you end up between 40-50% with most people landing in the 44% area. You really shouldn't lump 401(k) in there with "taxes" since you chose to divert those funds and they are going into your savings not the IRS'. Actually, if you do have a 401(k) deduction it is pretax which means all other taxes are calculated on the remainder which means your effective tax rate is actually much lower than what it would have been if you weren't saving money. (if that makes you feel any better)
Link Posted: 1/28/2002 4:21:23 PM EDT
Absolutely get the bonus in a seperate check.
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