Why is my federal tax rate so much higher for bonus pay?

Question

Hi, I work in a job where I make bonus pay each month. I have a salary and then any hours over 150 each month is counted as bonus pay. I have noticed that my effective tax rate for regular pay is about 10% but about 25% for my bonus pay. Why is this? Is there something that I can change to reduce that rate?

Answer 1

just means you'll be getting a fatter return when you file. Wages and bonuses are all taxed at the same rate, they probably just withhold more from your bonuses just to be safe.

safe meaning if somehow these extra bonuses put u in the next higher marginal tax bracket, the amount they withhold will be sufficient enough to cover the amount due on tax day..

Answer 2

It isn't - overtime and bonuses are taxed at the same rate as your base wages.

You're looking at your withholding. It's higher because when you get a bonus, most companies take out more. When you file your tax return at the end of the year, the bonus pay is treated the same as other ordinary income, so if too much is taken out of the bonus, you'll get it back unless too little was taken out of your regular pay, in which case the extra withholding on the bonus would make up for it.

Even if they didn't withhold at the statutory 25% from calling your overytime pay "bonus pay", your withholding would still be higher on that check because withholding for each check is calculated as if the gross for that check was what you made each pay period for the year.

Answer 3

Your employer can treat bonus pay as just added to your other income and taxed the same, or he can take out a flat percentage of 25%.

You can ask him to treat your bonus pay as added to your other wages, but he is not required to do this and probably won't.

You could resubmit a W-4 to reduce your regular withholding, but other than that, you will get the overwithholding back on the bonus pay when you file your tax return.

Answer 4

It's taxed at the same rate, but irregular payments such as bonuses are withheld at the statutory rate of 25%.

That said, your employer appears to be mis-interpreting the rules somewhat. Although what you are being paid is called a "bonus" it's not an irregular payment in your case and probably should be lumped in with the rest of your pay and withheld at the same amount.

This "bonus" is actually overtime pay and overtime pay is not subject to the higher statutory withholding rates regardless of what your employer calls it.

Answer 5

Your January income has nothing to do with February income. If you work on commission then you are taxed at the bonus rate. You need to check with HR