Why are bonus checks taxed at a straight 42%?

Question

Whenever I get a bonus check it is taxed at a straight 42%,does everyone get taxed this amount on bonus checks and why?I believe the IRS gets 25% while the rest goes to state,city and ss.

I know bonus checks are fully taxable,but why not the same % as my regular paychecks?

Answer 1

At least for the IRS, employers have the option of withholding from bonus checks using a flat rate of 25%. That is easier for employers than estimating your annual wage income and making the appropriate adjustment. Social Security accounts for another 7.65%, but that is no different from your other checks. Presumably, state and city taxes were deducted from your other checks as well, which accounts for the remaining 9.35%. I assume everyone where you live gets taxed about the same. (Some people may have hit the social security maximum for that year and will keep another 6.2%)

In short, because it is easy.

Answer 2

That's the law, that's why. The Federal rate is 25% by law. They are also subject to SS and Medicare at 7.65%. Most states also stipulate a mandatory withholding rate on bonuses so that could easily bring you to 42% especially in CA for example.

The reason for it is that in the past many taxpayers had too little withheld and wound up owing when they filed. Some would rush to the payroll office and put in an updated Form W-4 claiming 20 allowances to reduce the tax withheld from the bonus and then change it back once the bonus was paid. Congress changed the law a couple of years ago to stop that type of abuse.

It will all even out at tax time when you file your return. Sorry, but that's just the way that the laws are written; it's not the IRS trying to pull a fast one, they simply have to follow the law just as we do.

Answer 3

WITHHOLDING from bonus checks is at 25% for federal. It lumps in with your other income when you get your W-2, and the actual tax you owe is the same as any other regular income. If your bracket is under 25% so too much is withheld, you'll get the overpayment refunded to you.

Answer 4

It's because bonus checks are usually pretty big, and the computers think that this is your new salary. If you were to receive that bonus check every two weeks, you would be put in the 42% tax bracket.

The good news is that by the end of the year you will most likely be in a lower tax bracket and you'll receive some of the money back in a refund.

Answer 5

Military Bonuses are Taxed 48% XD.. so those people that were dumb enough to join the army for the money are only seeing half that enlistment bonus

Keep the Shiny Side up - USAF

Answer 6

Bonuses are earned and fully taxable income, so everything comes out - federal and state income tax, social security, Medicare, etc.

Answer 7

It will work out in the wash when you file your return IRS will only keep the correct amount

Answer 8

Bill Clinton

Answer 9

Adjust your W4 withholding to offset the excess.

I hated the IRS getting to use all that money interest free.