I've been working with my company for a year now and for my review- i was told that i may take a 1000.00 bonus in one lump sum or 11.57 raise. I'm currently making 10.57. What will they tax more and how much will be taken if i choose the bonus? I plan to leave my job in April due to maternity leave so some say the bonus would be the smarter choice. Thanks.
2006-10-19 06:55:47 · 4 answers · asked by Jessica S 1 in Business & Finance ➔ Taxes ➔ United States
Both Well Traveled and Phoenix's answers are good. Well Traveled is absolutely correct about taxes - withholding may be different for the two options, but the year-end impact is the same. Phoenix pointed out that the raise is worth $2080 if you work a full 40 week for 52 weeks. However, if you plan to work for this company for some time after maternity leave, then you need to think about the long term effect of a raise versus the short term impact of the bonus. The raise will not expire after one year, but will stay with you year-after-year. Even if you change jobs, you will be able to say truthfully that you made $1.00 more per hour, which is always taken into account when a new employer makes a job offer. If you stay, the next raise will add to the one you are considering now. Think about it. If you are planning to leave the workforce for the next 4 or more years, then take the bonus, otherwise give a lot of thought to that raise.
2006-10-19 09:29:05 · answer #1 · answered by Andreas 3 · 2⤊ 0⤋
When does the raise start? Will you be returning to the job? 6 mos. at 11.57/hr rather than 10.57/hr will gross you approx. $1038. They will both be taxed equally if the lump sum is paid separate from a paycheck. Adding the lump sum to a paycheck could push it into the next tax bracket. Either way, they will factor equally into your taxes at the end of the year. If you are going back to the job at some point, I suggest taking the raise. An extra dollar an hour is $2080 per year (40hrs/week for 52 weeks).
2006-10-19 07:08:52 · answer #2 · answered by Phoenix, Wise Guru 7 · 2⤊ 0⤋
In the long run the taxes will be exactly the same, because it's all income whether you take it in a lump or over time. The difference is that the initial lump sum will have more taxes taken out immediately (because companies are required withold from such bonuses as if you were going to make that amount every week all year), but you'll get some of that back when you file your tax return and get a refund.
Take the lump sum -- you'll get more now, and you'll get a nice tax refund next April-May, just when you'll need it for your pregnancy :)
2006-10-19 07:08:24 · answer #3 · answered by Anonymous · 1⤊ 0⤋
A $1/hr raise equals approx $40/wk or about $175/mo. In a full year it equals approx $2000. If you leave in April that's about 6 mos. or about $1000 the same as the bonus. Taxwise it is the same if you earn an extra $1000 all at once of over time. The difference is that if they give you $1000 all at once they will hold more taxes out of it on the check, and you will get those extra taxes back when you file.
2006-10-19 10:21:43 · answer #4 · answered by irongrama 6 · 0⤊ 0⤋