why is his bonus check so over-taxed?

Question

live in texas-(no state tax)-husband received first bonus check ...normal bi-weekly paycheck =$1569.00 (-$61 federal withholding, due to Married with 5 allowances.>>but the bonus check =$3833(-$958 federal withholding)...does NOT make sense! somebody please explain why they over-taxed this bonus check. total yearly income is 41K

the amount deducted for federal withholding was the amount shown in ( $ )

where does the federal tax charts separate wages from supplemental income like bonuses? why would it be so much higher? the end of the year would only total the income and access taxes on that....we always get a refund anyway. why would we want to wait til next year to see this money?

Answer 1

I used to work in payroll and all bonuses we sent out were taxed at the supplemental tax rate (25% federal withholding) regardless of the employee's W4 allowances. I believe the tax laws allow employers to choose to tax bonuses as regular wages or as supplemental earnings. We used to get this question all the time because we taxed grievance settlements as supplemental and all we could tell the employees was: it's policy, sorry.

If your payroll department will allow you to change your W4 withholding during the year, you can set yours to exempt for a few weeks to recover a little of the tax over the next few weeks and minimize the amount you will have to get back on your taxes at the end of the year. If you choose to do this, be very careful and remember to set it back so you won't be underwithheld for the year and subject to penalties. (this is probably not recommended but I know that it can be done.)

Answer 2

Here is the problem: Suppose an employee is paid non-recurring compensation in
addition to regular wages. Because federal and state income tax withholding tables are
“progressive,” they require a higher percentage of withholding as the compensation amount is
increased. Therefore, an employee normally subject to a withholding rate of 15% may be
withheld at 25% or more if one-time “supplemental wages” are included in the payment.
Importantly, the amount of tax withheld might exceed the sum of tax amounts calculated
separately on EACH payment.

Please check out this link for more details.
http://complianceconnection.adp.com/newsletter/taxres/pdf/jun2006_3.pdf

Answer 3

When you file your return, the bonus money is added to the other ordinary income, and taxes figured on the total. If more tax was taken out of the bonus than is due for that amount, the excess will be refunded at tax time. Withholding can be higher on bonuses than on wages, but tax is charged at the same rate.

Answer 4

The regular paycheck is taxed taking into account the allowances and the graduated tax tables. The first xxx dollars will be at the lowest tax percentage, the next xxx dollars at the next rate and so on. The actual dollar values and percentages are bases on what was claimed on the w4. The bonus however is taxed at the maximum rate since the basic income used up all of the lower percentage brackets. In this case it ended up being 25%. Hope this helps.

Answer 5

that's the regulation, that's why. The Federal fee is 25% by way of regulation. they are additionally undertaking to SS and Medicare at 7.sixty 5%. maximum states additionally stipulate a needed withholding fee on bonuses so as that could desire to surely deliver you to 40 two% quite in CA as an occasion. the reason for that's that interior the previous many taxpayers had too little withheld and wound up owing while they filed. some might rush to the payroll place of work and put in an as much as date form W-4 claiming 20 allowances to cut back the tax withheld from the bonus and then replace it decrease back as quickly as the bonus replaced into paid. Congress replaced the regulation a pair of years in the past to quit that kind of abuse. it is going to all even out at tax time once you report your return. Sorry, yet that's merely the way that the regulations are written; it isn't the IRS attempting to tug a speedy one, they only could desire to stick to the regulation merely as we do.

Answer 6

When I used to work in payroll for a large corporation, bonus checks, vacation payouts, etc. were considered supplemental income, taxed at a much higher rate (usually about 30%).

Answer 7

That's interesting

Answer 8

If employer lazy & included both checks when figuring 2nd ck withholding make come out but you are right - too high. Here's how to fix - Change W-4 to go up to 7 allowances for a while & you will even back out. Don't wait for next years' refund. No interest free loans!

Answer 9

it happened to me to i got bonus for $800 and the tax man took a bite of $330.i think irs has special rules for bonuses

Answer 10

Interesting thread!