Why are bonuses taxed at 48%?

Question

I worked really hard, all year i mean, exceedingly hard.. amazingly hard, because i had alot of debt from college and earned a $10,000 bonus and on my final check of the year I got it, and it was taxed at 48%. what in the world?

(edited).. why even work hard, then... sigh...

Answer 1

What you paid in and what you will be taxed are 2 different things. Your employer may have taken out more on the bonus, but if you had correct payroll deductions all year, then you will get a refund of any overpayment. Social Security & Medicare in the USA is 7.5%. The top US tax rate is 35% for 2007 for income above $349,700. If you made less, you will pay less tax. Your state may have an income tax also.

Answer 2

that must be from state, local and federal and social security taxes because the FEDERAL SUPPLEMENTAL INCOME tax rate is only 25% - If they withhold too much on federal tax, you'll get it back come tax return time. No company has to pay anyone a bonus - It's not and Entitlement - be grateful you even have a job where a bonus is even a possibility - especially one of that size

Answer 3

When you actually file your return, the bonus will be lumped in with your other income and taxed at whatever your bracket is - if too much was withheld, then you'll get it refunded.

That said, 48% sounds awfully high. There would be 25% withheld for federal income tax, 7.65% for social security and medicare (you don't get that back), and maybe something for state and local.

Answer 4

It wasn't "taxed" at that rate, taxes were withheld that add up to that rate.

Your final tax rate isn't determined when you file your tax return, and is determined by your Adjusted Gross Income for the whole year.

When the payroll computer sees a $10,000 payment, it (wrongly) treats it as if that's the amount of each of your paychecks, and so withholding is estimated by the computer as to what your tax rates would be if you DID always make that much.

If it turns out at the end of the year too much was indeed withheld, it will be adjusted when you file your return.

This is moderately complicated, and difficult to answer briefly - hope it helps somewhat.

Answer 5

Your bonus is considered a "supplemental wage". It gets hit with a flat federal rate of 28%. No tricky calculations there. Then tack on state tax, city tax, Social Security, Medicare, and even a 401(k) contribution if you have one. There you go.

Sucks, doesn't it?

Answer 6

Becasue it is assumed that the pay rate on your last check is your regualar salary. So $10,000 bonus looks like your make an extra 120,000 a year, so you are taxed in that bracket.

It should all work out once you file your return.

Answer 7

It was withheld at a high rate; that doesn't mean it was "taxed" at that rate. You'll get back any overwithholding when you file.